Case Law Details
Eastern Chemofarb Limited (DTA Unit) Vs Commissioner of Central Excise (CESTAT Kolkata)
The issue under consideration is whether the lower authority is correct in stating that the appellant is not entitled to avail credit of duty paid on inputs used in the manufacture of exempted goods since they have cleared the said exempted goods for export outside India?
CESTAT states that, in the instant case, the issue regarding the eligibility to avail credit is to be decided. Since the final product is exempted from payment of Central Excise duty no duty liability arises even if the same is cleared for domestic consumption. However, the appellant has cleared the said exempted goods for export outside India. The general provisions contained in Credit Rules provides that credit is not allowed to be claimed on inputs if the same is used in manufacture of exempted goods as would be clearly discernible on perusal of Sub-Rule (1) to (4) of Rule 6. However, Sub-Rule (6) of Rule 6 carves out an exception to provide that if the goods are cleared to SEZ or a 100% EOUs, EHTP, etc the restrictions contained in the said rules shall not apply, clearly implying that final products which have been exported would not be denied of the input credit benefit. Provision has also been made in Rule 6(6)(v) to state that goods cleared for export under bond in terms of Central Excise Rules shall also not be denied input credit, which also clearly implies that assessee shall be allowed to avail credit on inputs used in exported manufactured goods. CESTAT find that subsequent amendment made in Notification No.42/2001 (Supra) to do away with the requirement of following the bond related procedure in case of goods which are otherwise chargeable to ‘NIL’ rate of duty or wholly exempted is merely a procedure and has no relation whatsoever with the credit entitlement under Credit Rules. The disallowance of credit by both the authorities below in the instant case is not proper. Hence, in view of the above discussions, CESTAT hold that the appellant is duly entitled to avail credit and therefore, the impugned duty demand is not sustainable. The appeal is thus allowed with consequential relief.
FULL TEXT OF THE CESTAT JUDGEMENT
The instant appeal has been filed by the appellant assessee, M/s. Eastern Chemofarb Ltd, against Order-in-Appeal dated 04.05.2018 passed by the learned Commissioner (Appeals), Kolkata, upholding demand of Central Excise duty of Rs. 4,94,115.80 consequent to denial of Cenvat credit for the period from April 2011 to December 2011 vide Order dated 28.02.2013 passed by the learned Dy. Commissioner, Central Excise, Asansol.
2. The facts of the case in brief are that the appellant is engaged in the manufacture of Shellac classifiable under chapter 13 which is wholly exempted from payment of Central Excise duty. The said manufactured goods have been exported outside India. An amendment was made in Notification no. 42/2001-CE(NT) dated 26.06.2001 vide Notification no. 24/2001-CE(NT) dated 26.05.2010, whereby the export of goods which are exempted or subjected to NIL rate of duty, shall not be allowed to be cleared, which was previously allowed to be cleared for export under Notf. 42/2011 under bond. The authorities below disallowed the CENVAT credit of duty paid on inputs used in the manufacture of goods which were exported outside India on the ground that since the said goods were otherwise exempted, the same were not allowed to be cleared under bond. The authorities below have also contended that in terms of Rule 6 of the CENVAT Credit Rules, 2004 (Credit Rules), credit is not available on inputs which is used in the manufacture of exempted goods. It was further contended that exclusion to said Credit Rules provided in Rule 6(6)(v) is not applicable since the said exclusion is only available for “goods cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002”. It is the contention of the lower authorities that since after the amendment vide Notification no. 24/2010 (Supra), the goods which are already exempted cannot be exported under bond for export outside India, the benefit of Rule 6(6) of the Credit Rules shall not be available to the appellant and hence, the appellant is not entitled to avail credit of duty paid on inputs used in the manufacture of exempted goods. Based on said observations, the instant demand has been raised by denying the credit availed by the appellant in the ER-1 returns filed by them.
3. Heard Shri Anjan Dasgupta, learned Advocate for the appellant and Shri H.S.Abedin, learned Authorized Representative for the Revenue. The learned Advocate, while pleading for their eligibility to avail credit, placed reliance on several case decisions including the following :-
- CCE vs. Drish Shoes Ltd. 2010 (254) ELT 417 (HP) affirmed by the Apex Court as reported in 2018 (360) ELT A191 (SC)
- Jolly Board Ltd vs. CCE, Aurangabad 2015 (321) ELT 502 (Tri-Mum)
- CCE, Rajasthan vs Medicamen Biotech Ltd 2019 (368) ELT 324 (Raj)
4. The learned Authorized Representative for the respondent Revenue reiterated the order passed by the learned Commissioner (Appeals) and prayed to reject the appeal filed by the assessee.
5. Heard both sides and perused the appeal records.
6. I find that in the instant case, the issue regarding the eligibility to avail credit is to be decided. Since the final product is exempted from payment of Central Excise duty no duty liability arises even if the same is cleared for domestic consumption. However, the appellant has cleared the said exempted goods for export outside India. The general provisions contained in Credit Rules provides that credit is not allowed to be claimed on inputs if the same is used in manufacture of exempted goods as would be clearly discernible on perusal of Sub-Rule (1) to (4) of Rule 6. However, Sub-Rule (6) of Rule 6 carves out an exception to provide that if the goods are cleared to SEZ or a 100% EOUs, EHTP, etc the restrictions contained in the said rules shall not apply, clearly implying that final products which have been exported would not be denied of the input credit benefit.
7. Provision has also been made in Rule 6(6)(v) to state that goods cleared for export under bond in terms of Central Excise Rules shall also not be denied input credit, which also clearly implies that assessee shall be allowed to avail credit on inputs used in exported manufactured goods.
8. I find that subsequent amendment made in Notification no. 42/2001-CE(NT) dated 26.06.2001 (Supra) to do away with the requirement of following the bond related procedure in case of goods which are otherwise chargeable to ‘NIL’ rate of duty or wholly exempted is merely a procedure and has no relation whatsoever with the credit entitlement under Credit Rules. The disallowance of credit by both the authorities below in the instant case is not proper.
9. I also find that the issue has already been dealt by the Tribunal in the case of Jolly Board Ltd (supra) wherein the Bench after applying the ratio decidendi laid down by the various High Courts observed as below:
“5. In this case the appellant has procured inputs/input service on payment of duty which were gone in the manufacturing of exempted goods which were exported by the appellant. These facts are not in dispute. The intent of the legislation is not in dispute that the taxes are not to be exported. The same issue came up before Jobelle (supra) wherein this tribunal held that the sub-rule (5) makes an exception when exempted finished goods are either cleared to a free trade zone, SEZ, 100% EOU or are cleared for export under Bond without payment of duty. If the goods are exported on payment of duty after taking credit of duty paid on the inputs and utilizing the same, then the question of refund of input duty would not arise. But is clearly the Governments policy not to export the domestic duties, on the finished goods or on the inputs, to the International market. If refund of input duty credit is not allowed, the goods will become costly in International market and less competitive.
6. Further, this issue came up before the Hon’ble High Court in the case of Drish Shoes Ltd. (supra) wherein the facts were the assessee were manufacturers of finished leather and finished leather was exported. After export they claimed refund on account of CENVAT credit paid on inputs, which were purchased for finishing the export goods. Refund was sought to be denied under provisions of Rules 5 and 6 of CENVAT Credit Rules, 2002. Thereafter the Hon’ble High Court examined the issue and held as under :
7. The issue came up before the Hon’ble High Court of Bombay in Repro India Ltd. (supra) wherein the Hon’ble High Court held that CENVAT credit used in the manufacture of final product being exported irrespective of the fact that final product are otherwise exempted by provisions of Rule 6(6)(v) of the CENVAT Credit Rules, 2004 are applicable. Further, I find that in the case of Salzer Controls Ltd. – 2003 (160) E.L.T. 1169 and Paras Ship Breakers Ltd. this Tribunal has held that non-execution of bonds are only technical lapse. Further, in the case of Well Known Polyester Ltd. (supra) wherein the exempted goods were exported without bond or LUT by an assessee who was not even registered without bond or LUT by an assessee who was not even registered with the Central Excise This Tribunal has held that execution of bond/LUT was only procedural lapse for which refund could not be denied.
8. Admittedly, in this case, appellant has not executed any bond for export of the goods. If the goods are exempted, execution of bond was not required.
9. In these circumstances, relying on the above cited decisions, I hold that the appellant are entitled for refund claim. Accordingly, appeals are allowed with consequential relief.”
10. It is also emphasised and constantly held by the Tribunal that the policy of the Govt. of India is to promote the export of goods and not to export the domestic taxes and levies so as not to render the goods costlier in international market and un-competitive.
In view of the above discussions, I hold that the appellant is duly entitled to avail credit and therefore, the impugned duty demand is not sustainable. The appeal is thus allowed with consequential relief.
