Customs, Excise & Service Tax 

Appellate Tribunal West Zonal

Bench At Ahmedabad

 

REGIONAL BENCH-COURT NO. 3

Excise Appeal No. 13441 of 2013- DB

[Arising out of OIA-SRP/131-133/DMN/2013-14 dated 15/07/2013 passed by Commissioner of Central Excise, Customs and Service Tax-DAMAN( Appeal)]

 

Vertellus Specialty Materials India Pvt Ltd

VERSUS 

C.C.E. & S.T.-Daman

 

APPEARANCE:

Miss, Disha Gursahaney, Advocate for the Appellant

Shri, Tara Parakash, Assistant Commissioner (AR) for the Respondent

 

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON’BLE MEMBER (TECHNICAL), MR. C L MAHAR

 

Final Order No.A/ 11203 /2023

 

DATE OF HEARING: 20.02.2023 DATE OF DECISION: 07.06.2023

RAMESH NAIR

 

This appeal is filed against the Order-in-Appeal No. SRP/131- 133/DMN/2013-14 dated. 15.07.2013 passed by the Commissioner (Appeals), Central Excise & Customs, Vapi, Gujarat.

 

 

2. The brief facts of the case are that appellant had exported their final products of chapter 29 of CETA, 1985 and had preferred three refund claim, in respect of accumulated Cenvat Credit under the provisions of Rule 5 of Cenvat Credit Rules, 2004 read with Section 11B of Central Excise Act, 1944 and Notification No. 5/2006-CE (NT) dated 14.03.2006 on the ground that they were not in a position to utilize the cenvat credit of duty paid on raw materials. The department noticed several discrepancies in respect of the said claims and consequently issued three Show Cause Notices proposing to reject the claims. All the three show cause notices were adjudicated under the common Order-In-Original dated 19.02.2013, wherein the adjudicating authority has rejected all the three claims. Aggrieved,the appellant filed appeal before the Commissioner (Appeals), who vide impugned order upheld the order of the lower authority and rejected the appeal. Hence this

 

 

3. Learned Counsel Shri, Disha Gursahaney appearing on behalf of appellant submits that the appellant is engaged in the manufacture of excisable goods viz., 4,4Dichloro Diphenyl Sulphone falling under chapter heading  29 of the Central Excise Act, 1985. Appellant exported the said goods under bond without payment of duty. During the course of manufacture of goods, certain process waste is also generated and the same is also cleared in the domestic market upon payment of appropriate excise duty. The said facts have been duly disclosed by the appellant in their monthly Excise (ER-1) returns filed. Since all the said finished goods were cleared by way of export i.e outside the country, Cenvat credit of excise duty and service tax paid on inputs an inputs services used in the manufacture of the said finished goods remains unutilized. Thereby, the appellant has claimed a refund of Rs. 1,29,21,833/- of the said unutilized credit by way of claiming refund under Rule 5 of Cenvat Credit Rules 2004.

 

• He further submits that on the facts and circumstances of the case, Ld. Commissioner has grossly erred in stating the fact that the appellant has not complied with the conditions and limitation of Rule 5 of Cenvat Credit Rules 2004. Ld. Commissioner has grossly erred in stating that the Appellant should have utilized the balance of its cenvat credit towards the payment of excise duty on goods manufactured and cleared for home consumption or for export on payment of duty or payment of service tax on output service. The Ld. Commissioner has grossly erred in stating this fact, in as much as, the only clearance made by the appellant during the impugned period as disclosed in ER-1 return are by way of export only. It may be noted that the export of all the excisable goods (except a few) to all countries except to Bhutan are exempt from central excise duty. In this regard, it may be noted that the appellant does not make any export to Bhutan. Hence, there arise no questions of adjustment of the balance of CENVAT credit with the excise duty on final products as the said goods in the instant case are being exported only by way of export without payment of duty.

 

• He also submits that no one to one co-relation between the goods exported and raw material utilized in the manufacture of goods is required. The facts of the judicialpronouncement relied by the  Commissioner are different from the facts in the instance case.

 

• Heplaced reliance on the following Judgments:
  • Raychem RPG Pvt. Ltd. Vs. CCE, Palghar, Mumbai – 2022-VIL-429-CESTAT- MUM-CE

 

• CCEVisakhapatnam –I  Arcelor Mittal Nippon Steel India Ltd. – 2022-VIL- 713-CESTAT-HYD-CE
• Bright Engineering Works Erstwhile 100% EOU Vs. CCE, Daman – 2022-VIL- 966-CESTAT-AHM-CE
• K Line Ship Management (India) Pvt. Ltd. Vs. Commissioner of Service tax, Mumbai – 2017(7)TMI 412 –CESTAT MUMBAI
• M/sShell India Markets  Ltd. Vs. CCE – 2019(5)TMI 1292-CESTAT Chennai.
• M/s Keva Fragrances Pvt Ltd. Vs. CCE, Mumbai –III- 2022-VIL-178-CESTAT- MUM-CE.

 

4. Shri, Tara Parakash Learned Assistant Commissioner(AR) appearing for Revenue relied on the impugned order.

 

5. We have carefullyconsidered the submissions made by both sides and perused the records.

 

• We find that the issue which arises for consideration would relate to refund claims made by the appellants under Rule 5 of the CENVAT Credit Rules, 2004, post 31-3-2012 and for the earlier period also. Hence, Rule 5 of the CENVATCredit Rules, 2004 which was in force up to 31-3-2012 and the Rules made from 1-4-2012 are extracted herein below :
  • Rule5 of the Cenvat Credit Rules, 2004 before 1-4-2012

 

“RULE 5.Refund of CENVAT credit. – Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

 

• duty of excise on any final product cleared for home consumption or for export on payment of duty; or

 

• service tax on output service, and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification :

 

Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.

 

Provided further that no credit of the additional duty leviable under sub-section (5) of Section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service.

 

Explanation : For the purposes of this rule, the words ‘output service which is exported’ means the output service exported in accordance with the Export of Services Rules, 2005.

 

Explanation : For the purposes of this rule, “duty” means the duties (1) of rule 3 of these rules.

 

• Rule5 of the Cenvat Credit Rules, 2004 from 1-4-2012

 

“5. Refund of CENVAT Credit. – (1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette : specified in sub-rule

 

Refund amount		(Export turnover of goods + Export turnover of services)	×	Net CENVAT credit
	=
		Total turnover

 

Where,-

• “Refundamount” means the maximum refund that is admissible;
• “Net CENVAT credit” means total CENVAT credit availed on inputs and input services by the manufacturer or the output service provider reduced by the amount reversed in terms of sub-rule (5C) of Rule 3, during the relevant period;
• “Export turnover of goods” means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking;
• “Export turnover of services” means the value of the export service calculated in the following manner, namely :-

Export turnover of services = payments received during the relevant period for export services + export services whose provision has been completed for which payment had been received in advance in any period prior to the relevant period – advances received for export services for which the provision of service has not been completed during the relevant period;

• “Totalturnover” means sum total of the value of –
  • allexcisable goods cleared during the relevant period including exempted goods, dutiable goods and excisable goods exported;
  • export turnover of services determined in terms of clause (D) of sub-rule (1) above and the value of all other services, during the relevant period; and
  • all inputs removed as such under sub-rule (5) of rule 3 against an invoice,during the period for which the claim is filed.

(2)  This rule shall apply to exports made on or after the 1st April, 2012 :

 

Provided that the refund may be claimed under this rule, as existing, prior to the commencement of the CENVAT Credit (Third Amendment) Rules, 2012, within a period of one year from such commencement :

 

Provided further that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of Service Tax under the [Service Tax Rules, 1994] in respect of such tax.

Explanation 1. – For the purposes of this rule,-

• “exportservice” means a service which is provided as per the Rule 6A of the Service Tax Rules, 1994;

 

• “relevantperiod” means the period for which the claim is 

Explanation 2. – For the purposes of this rule, the value of services, shall be determined in the same manner as the value for the purposes of sub-rule (3) and (3A) of rule 6 is determined.”

 

5.2. A plain reading of the above Rule would indicate that where any input for input service is used in the manufacture of final product which is cleared for export under Bond or letter of undertaking, the Cenvat credit in respect of the same, so used shall be allowed to be utilized by the manufacturer or provider of output service so used and shall be allowed to be utilized by the manufacturer or provider of output service and if for any reason, such adjustment is not possible, the manufacturer or the provider of output service would be entitled to seek refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification. To put it differently, in terms of Rule 5 of CENVAT Credit Rules, 2004 when a manufacturer is exporting the final product continuously without payment of duty, the CENVAT Credit on inputs-input services would be accumulating to his CENVAT Credit records. Such manufacturer would be entitled to utilize the CENVAT Credit either for payment of excise duty on final products cleared for home consumption or for export on payment of duty or for payment of service tax on output service. If these contingencies are not forthcoming for any reason, then manufacturer/output service provider can seek refund as provided under Rule 5 read with relevant or extant notifications so issued.

 

• In the present matter it is not in dispute that entire refund claim in question had been filed under Rule 5 of the rules, which is a beneficial provision for manufacturer who cleared final product or intermediate product for export without payment of duty under bond, etc. We find that in the present matter Ld. Commissioner rejected the refund claim on following ground.

 

“9. I find that as per the said rule 5, the refund is available in case where adjustment of the cenvat credit is not possible for the payment of duty of excise on any final products cleared for home consumption or for export on payment of duty or for the payment of service tax on output service. In the instant case, it has been clearly found by the adjudicating authority that the appellant is a DTA unit and there is clear possibility of the adjustment of credit towards payment of duty on the finished products cleared for home consumption or for export on payment of duty. In my view, the rule is very clear to the extent that the cenvat credit in respect of the input or input services so used shall be allowed to be utilized by the manufacturer or provider of output services mainly, towards payment of duty of excise on any final products or for the payment of service tax. But in case the above two options are not available with an assessee, then

 

only the credit may be refunded. That is to say that as long as the two options of payment are available, third option is not available to the assessee.”

 

• However on reading of Rule5 of the said Rules, we are unable to accept the findings of the Commissioner (Appeals). The refund of Cenvat credit under Rule5 wouldbe applicable where any inputs are used in the final product which are cleared for export under bond or letter of undertaking, Cenvat credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export of payment of duty, and whether any reason such adjustment is not possible, manufacturer shall be allowed to refund of such  Proviso to Rule5 imposes a restriction that no refund or credit shall be allowed if the manufacturer avails of drawback claim or claims rebate of duty. In the present case, there is no dispute that the appellant had exported the goods without payment of duty, further, there is no dispute that the appellants have not availed the drawback or rebate of duty, hence the refund of credit shall be allowed, as the amount cannot be adjustable against clearance of home consumption or for export on payment of duty. The Tribunal in the case of Jenntex Engg. Company v. CCE, Coimbatore – 2009 (234) E.L.T.

519 (Tri.-Chennai) (supra), observed that the ground on which refund claim was rejected that the assessee could have exported the goods on payment of duty utilizing credit is a wrong ground and a misdirected one. On a plain reading of Rule5 of the said Rules, it is clear that the assessee is entitled to claim refund on the accumulated credit “where for any reason such adjustment is not possible”.

 

• FurtherTribunal in CCE, Madras  Indian Steel Rolling Mills Ltd., 1996

(86) E.L.T. 114 (Tri.), wherein denial of refund of credit accumulated due to exports on the ground that the assessee had also clearances for home consumption was over-ruled on the basis that the relevant notification envisaged granting of refund in such cases once in every quarter and that the appellants therein could not utilize the accumulated credit within a period of 3 months.

 

• We also find that in para 6 of Navbharat Industries CCE, Mumbai reported in 2006 (199) E.L.T. 148(Tri.-Mum.). (supra), the Tribunal observed as follows :

“We agree with the ld. Advocate appearing for the appellant that the provisions of Rule 5 relating to refund of Modvat credit accumulated in the records on account of their non- utilization for the exported goods is a beneficiary piece of legislation, the refund arising on

 

account of the same cannot be denied being a substantive right of the citizen. The wording of Rule 5 read with Rule 3 are very clear providing for refund of accumulated modvat credit if the same cannot be adjusted for any reason. As such the only condition in the said Rule is non-utilization of the credit and no-jurisdiction vests in the Central Excise officer to find out the reason for such non-adjustment. The use of the expression that “where for any reason” such adjustment is not possible; the manufacturer shall be allowed refund of such amount is an unlimited expression and cannot be narrowed or curtailed down by the departmental authorities.”

10. The ratio of this decision supports the obvious reading that when the manufacturer exports his finished products without payment of duty and is not in a position to utilize the credit for payment of duty on clearances for home consumption etc., the manufacturer is entitled to receive refund of the input credit. In the circumstances, the finding of the Commissioner (Appeals), is erroneous and cannot be sustained.”

 

• In View of the discussions made as above, in our considered opinion, appellant will be eligible for refund of accumulated credit under Rule5 of CCRand notifications issued there under subject to the various conditions of that Rule and related notifications being satisfied. Further after 01.04.2012 the refund amount are required to be calculated on the basis of formula prescribed in above rule. While upholding the appellant’s contention that they are eligible for refund of accumulated credit under Rule5 ibid, the matter is remanded back to the original authority only to the limited purpose of verifying conditions of Rule and Notification issued there under and calculation of refund amount after 01.04.2012 as per the formula of Rule 5 ibid.

 

6. The impugned order is set aside and the matter is remanded to the adjudicating authority to decide the refund claims afresh after, taking into consideration our above observations/findings and after affording an opportunity of hearing to the appellant. The appeals are allowed by way of remand.

 

 

 

(Pronounced in the open court on 07.06.2023 )

 

(RAMESH NAIR) MEMBER (JUDICIAL)

(C L MAHAR) MEMBER (TECHNICAL)