Government of India
Ministry of Finance
Department of Revenue, New Delhi
Subject: Utilisation of MODVAT credit in respect of inputs on which credit is availed but the inputs are exported as such under bond – Regarding.
It has been represented to the Board that the field formations have taken a view that credit on inputs cleared as such for export under bond cannot be allowed to be utilised for payment of duty on final products cleared for home consumption nor can it be refunded in cash. In this regard, it has been stated that aforesaid facilities are available where inputs are used in the manufacture that aforesaid facilities are available where inputs are used in the manufacture of export products and not to the cases where input have them selves been exported. This doubt has arisen on account of the proviso to Rule 57F(4) according to which duty availed on inputs used in the manufacture of final product exported under bond could be utilised towards payment of duty on goods cleared for home consumption or refunded in cash.
2. The matter has been examined by the Board.
3. Rule 57A(1) provides for the general scheme of MODVAT given in Section V(AA) of the Central Excise Rules, 1944 and it indeed mentions that credit of duty will be allowed for utilising towards payment of duty of excise leviable on the final products. WHereas Rule 57F is a more specific provision regarding manner of utilisation of the inputs and the manner of utlisation of the credit allowed in respect of duty paid thereon. Rule 57F (1)(ii) permits removal of the inputs as such for export under bond. Proviso to Rule 57F(1)(ii) permits removal of the inputs as such for export under bond. Proviso to Rule 57F(4) deals with manner of utilisation of credit in cases of export of “final products” or “intermediate products” under bond. Export of inputs as such under bond were treated as “final product” by virtue of “deemed manufacture” clause (i.e. the expression as if such inputs have been manufactured in the same factory) under the erstwhile Rule 57F(1)(ii) which covered all such cases within the ambit of proviso to Rule 57F(4). This expression was omitted by Notification No. 28/95-CE (NT) dated 29.6.95 with a view to simplify the clearance procedure, which has created doubt in respect of utilisation of credit in such cases. It is not the intention of the Government of debar such manufacturer-exporters from utilising credit. Clearance of inputs as such for export under bond can still be treated at par with “final product” and the manner of utilisation of credit in such cases will be governed by the provisions of the proviso to Rule 57F(4).
4. It is also observed that in case such inputs are cleared o payment of duty by debit in RG-23A Part-II account by virtue of Rule 57F(4)(iii), the manufacturer will be entitled for rebate under Rule 12(1)(a) of the Central Excise Rules, He is, however, put to disadvantage if he opts for export under bond procedure. The exports under “claim of rebate” and “export under bond” should be at parity since, intention of both the procedures are to make duty incidence “nil”. It is also an-established principle that rules should be interpreted in a manner which do not render them redundant.
5. Accordingly, it is clarified that the Modvat credit in RG-23-A Part-II account against the export of inputs as such under bond can be utilised in the same manner as it is provided for a final product under Proviso to Rule 57E(4). Obviously, it follows from this that such inputs should be allowed to be exported under bond without any reversal of the credit.