The Hon’ble Prime Minister, in order to encourage Companies to manufacture their products in India has launched initiative named ‘Make in India’ on September 25, 2014. This had not only helped Indian manufacturers to enhance their capital base as there are proposed relaxations in the policy of Foreign Direct Investment but also produce their products in India by benchmarking the International Standards.
The Government issued a Notification No. 114 (RE-2013)/2009-2014 dated March 12, 2015 which is one more step forward in improving ‘Ease of Doing Business’ by reducing the compulsory documents required for import and export of goods. Further as per CBEC Circular No. 1/2015 – Customs dated January 12, 2015, the Customs have also merged the ‘Commercial Invoice’ with the ‘Packing List’ and provided acceptance to ‘Commercial Invoice cum Packing List’ that combines the required details of both the documents.
On the other hand, in the Union Budget, 2015 vide Notification No. 06/2015-C.E. (N.T.) dated March 1, 2015 (Effective from March 1, 2015), Export goods have been defined by inserting a Clause (1A) in Explanation 1 to Rule 5 of the Credit Rules, which is reproduced as under:
“(1A) “export goods” means any goods which are to be taken out of India to a place outside India“.
Similarly, Notification No. 8/2015–C.E. (N.T.) dated March 1, 2015 has substituted the existing explanation to Rule 18 of the Central Excise Rules, 2002 (“the Excise Rules”) to narrow down the meaning of the term ‘Export’ in the following manner:
“Explanation. – For the purposes of this rule, “export”, with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India and includes shipment of goods as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft.”.
Hitherto, in terms of Rule 5 of the Credit Rules, the 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, was allowed refund of Cenvat credit as determined by the formula, procedure, conditions etc. specified therein.
Furthermore, in terms of Rule 18 of the Excise Rules, in case of export, the Central Government may grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacturing or processing of such goods subject to certain conditions or limitations, if any, and fulfilment of certain procedure, as may be specified.
Hence, with the insertion of the words “taking goods out of India to a place outside India”, the Government has made it clear that the actual export will only be given benefit under the Excise Rules & the Credit Rules and not the “Deemed export”, which is defined under Para 8.1 of Chapter 8 of the Foreign Trade Policy 2009-14 (“the FTP”) as under:
“Deemed Exports refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange”
Accordingly, with the stated amendment, the issue that arise for consideration is that how the Assessee who supplies goods to Export Oriented Units (“EOUs”)/ Special Economic Zones (“SEZs”), will get refund of the duties suffered by him.
Our Comments: It is worth observing that recently, the Hon’ble High Court of Gujarat in the case of E I Dupont India Pvt. Ltd. Vs. Union of India [2014 (305) E.L.T. 282 (Guj.)] has confirmed the fact that even Deemed exports are eligible for refund under Rule 5 of the Credit Rules. In pursuant to the above decision, the Board also issued an Instruction F. No. 201/01/2014-CX.6 dated June 26, 2014 wherein it has been strictly instructed to follow the judicial discipline by the adjudicating authorities when the issue is covered by decisions of High Courts or Supreme Court. This instruction also clearly states that if there exists any precedent judgement which has been decided against the revenue then the officers shall be bound by it. Moreover, even if the appeal has been filed against the precedent judgment by the revenue department, still the same is required to be followed for deciding the issue in case of other assessees in view of the decision given by the Hon’ble Supreme Court in the case of Union of India Vs. Kamalakshi Corporation Ltd. [1991 (55) E.L.T. 433 (S.C.)].
However, with the stated amendments in Rule 5 of the Credit Rules read with Rule 18 of the Excise Rules, fate of refunds in case of Deemed exports has raised concerns among the Trade. If Deemed exports are excluded from the purview of Rule 5 of the Credit Rules and Rule 18 of the Excise Rules, then in such a scenario, taxes and duties paid on Inputs though available as credit would add to the cost of products supplied to EOUs/ SEZs as they will remain unutilised in case substantial part of the clearances are to EOUs/ SEZs. This will ultimately result in export of taxes and duties which has never been the intention of the Government. Thus, in turn it will hamper the Government’s broad vision of making all manufactures self-reliant and create India’s Product image in the global market. Hence, achievement of mission ‘Make in India’ is at stake.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: firstname.lastname@example.org)