The basic idea behind giving such incentive is to help the domestic exporter competing globally in meeting stiff competition by their foreign counterparts. The theme is “while goods should be exported the taxes should not”. Despite clear provision of law in terms of Rule 5 of cenvat credit Rules, 2004 the claim of refund of the credit is sometimes disallowed by the department on frivolous grounds. Most of the time the claim is disallowed on the ground that since the final product attracts nil rate of duty or is exempted, refund of cenvat credit is not permissible. Let us understand the whole scheme of giving refunds with the help of statutory provisions.
Rule 5 of the Cenvat Credit Rule 2004 is the provision of refund of Cenvat Credit in certain circumstances. If the rule is analyzed, we find that in case of any goods or services which are exported, the cenvat credit in respect of input and or services are accumulated and the same can be utilized by the manufacturer for the payment of duty of excise or service Tax, which arise when some of goods and services are cleared for home consumption. But if for any reason above said adjustment of credit is not possible then the manufacturer or provider of output service “shall be” allowed to refund such amount of credit. As we notice the words used in Rule 5 are ” shall be allowed” which clearly denotes the intention of legislature i.e. you have to refund the unutilized cenvat credit to the exporter, there are only two conditions for the refund of Cenvat Credit.
i) That all the refunds are subject to safeguard, condition and limitation as specified by the central Government
ii) That the refund shall not be allowed if the manufacturer or output service provider has availed drawback.
Except the above the provision of law regarding refund of credit is clear and mandatory in nature.
After going through the judicial pronouncements made in some of the recent judgments it appear that the confusion in disallowing the credit sometimes lies In Rule 6 of Cenvat Credit Rule, 2004. Perhaps despite plethora of judicial pronouncement on the subject which clearly says that exported goods are not exempted goods the department is not willing to demarcate a clear line between Rule 5 & Rule 6 of Cenvat Credit Rules. Some of the binding judicial pronouncements relevant to this topic are as follows:-
- Commissioner of Customs, Bangalore Vs. ANZ International – 2009 (243) E.L.T. 40 (Kar.)
- Neo Foods Pvt. Ltd Vs Commissioner, Of Customs( Appeal) Bangalore – 2009 (242) E.L.T. 562 (Tri.- Bang)
- CCE Thane-II v D.C. Polyester Pvt. Ltd. -2009 (242) E.L.T. 348 (BOM)
- Tufropes Pvt. Ltd v. CCE Vapi – 2009 (242) E.L.T. 246 (Tri.- Ahmd)
- GTN Exports Ltd v. CCE, Coimbatore – 2009 (236) E.L.T. ( Tri.-Chennai)
Basically Rule 5 and Rule 6 operate independently in their own domain and the rider mentioned in Rule 6 can not be utilized to deny refund of cenvat credit in terms of Rule 5. Even otherwise the authority which disallows the refunds in terms of Rule 5 on the basis that exported Goods attract nil rate of duty blindly and blatantly ignore sub – Rule (6) of Rule 6 which clearly says that the provision of this rule is not applicable in the case of exported goods. When the goods can be exported and it can be removed from the premises without payment of duty in terms of rule 19 of the central Excise Rule 2002, it is beyond comprehension how a refund under Rule 5 can be refused taking shelter under Rule 6. The approach should be definitely export oriented and user friendly. The division Bench of Hon’ble Bombay High Court in the matter of Repro India Ltd Vs UOI – 2009 (235) E.L.T. 614 (Bom.) has clearly reiterated the law in this regard –
“Even though Rule 6(1) of the Cenvat Credit Rules, 2004 Provides no Cenvat Credit will be available in respect of the inputs used in the manufacturer of exempted products, rule 6(6)(v) of the cenvat credit rules creates an exemption inter alia in respect of the excisable goods removed without payment of duty for export under bond in terms of central Excise Rule,2002 Considering the language of Rule 6(6) (V) of the Cenvat Credit Rules the petitioners are entitled to avail Cenvat credit in respect of the inputs used in the manufacture of the final products being exported irrespective of the fact that the final products are otherwise exempt”