Provision of reversal of Cenvat credit under Rule 6 of Credit Rules not applicable on export of exempted goods under bond

CA Bimal Jain

Mahindra & Mahindra Ltd. Vs. Commissioner of Central Excise, Mumbai-V [2015 (10) TMI 2348 – CESTAT Mumbai]

Mahindra & Mahindra Ltd. (“the Appellant”) was engaged in the manufacture of the exempted goods and taxable goods. The Appellant has availed credit of the duty paid on common inputs which were used in the manufacture of the aforesaid goods. Accordingly, the Appellant used to pay 10% of the sale price of exempted goods at the time of their clearance from their factory premises for testing, as stipulated under Rule 6(3)(b) of the Credit Rules. After testing, the exempted goods were brought back into the factory and subsequently, exported under Bond. As the Appellant had cleared the goods for export under Bond, in terms of Rule 6(6)(v) of the Credit Rules, neither any duty was payable nor the sub-rule (i), (ii), (iii) & (iv) of Rule 6 were applicable. Accordingly, the amount of 10% paid earlier by way of reversal of Cenvat credit was claimed as refund, as the same was not legally payable due to the fact of export.

The Department has rejected the refund claims on the ground that the Appellant was not eligible for availing Cenvat credit of inputs used in manufacture of exempted goods in terms of Rule 6(1) of the Credit Rules. Therefore, the provisions of Rule 6(3)(b) of the Credit Rules would not apply.

The Hon’ble CESTAT Mumbai held that since the exempted goods were brought back into the factory after testing and subsequently, exported under Bond, therefore, by virtue of Rule 6(6)(v) of the Credit Rules, the provisions of sub-rule (i), (ii), (iii) & (iv) of Rule 6 are inapplicable. Accordingly, the amount deposited by the Appellant becomes refundable.