CA Pradeep Jain,
CA Neetu Sukhwani &
Introduction: – It is a very old tactic followed by the government that when the interpretation taken by High Court or Supreme Court on an issue is consistently held against the revenue, the best solution lies with amending the statutory provision or adding explanations to it. This is the strategy that the Modi’s government has adopted in this Budget also. All the propaganda regarding ‘non-adversial and stable tax environment’ with doing away the practice of retrospective amendments were only made to lure the public to give votes. The amendment made by the government in Rule 5 of the Cenvat Credit Rules, 2004 by the notification no. 06/2015-CE (N.T.) dated 01.03.2015 is yet another example of the practice of the government to override and nullify the judicial pronouncements.
Backdrop of the issue under consideration:- Rule 5 of the Cenvat Credit Rules, 2004 pertains to the refund of accumulated cenvat credit available to the exporters. The Rule (1) states that:-
RULE 5 Refund of CENVAT Credit. – (1) A manufacturer who clears a final product or a 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, safe guards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette.
It is worth noting that Explanation no. 1 (1) to this Rule states that for the purpose of this rule,- “export service” means a service which is provided as per Rule 6A of the Service Tax Rules, 1994. However, there is no clarification for the “export of goods”. Consequently, the issue that arose was whether clearances by a manufacturer to 100% EOU would be eligible for the refund of accumulated credit under Rule 5 or the refund is to be granted only for the physical exports made without payment of duty under ‘bond or letter of undertaking’. It was contended by the assessees that clearance to 100% EOUs are effected against CT-3 that is issued by debiting the requisite amount from the bond executed by 100% EOUs and consequently, such clearances are also to be considered at par with export under bond. Moreover, the Hon’ble Gujarat High Court has held in the case of Commr of C.Ex. Vs Shilpa Copper Wire Industries [2011(269) E.L.T. 17 (Guj.)] that refund of unutilised cenvat credit in case of deemed exports is also admissible and while pronouncing this reliance has been placed on Apex Court decision. Not only this, similar view was taken by the Hon’ble Gujarat High Court in the case of Commr of C.Ex. & Customs Vs NBM Industries [2012 (276) E.L.T. 9 (Guj.)] wherein it was also concluded that refund under Rule 5 cannot be denied on the ground that it is available for physical exports only and not admissible for deemed exports. In this case, the decision was delivered by placing reliance on another Apex Court decision given in the case of Virlon Textile Mills Ltd. Vs Commr of C.Ex., Mumbai [2007(211) E.L.T. 353 (S.C.)]. It is also worth observing that recently, the same Gujarat High Court 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 Cenvat Credit Rules, 2004 and even proposed to issue strictures against the adjudicating authority which ignored the binding precedents laid by the High Court and Supreme Court. In pursuant to the above decision, the Board also issued Instruction no. F. No. 201/01/2014-CX.6 dated 26.06.2014 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 Supreme Court in the case of Kamalakshi Corporation Ltd.
Inspite of the above cited decisions pronounced by the High Court, the assessees claiming refund under Rule 5 for deemed exports were harassed by taking contention that the revenue department has filed Special Leave Petition against the decision given by the Hon’ble Gujarat High Court in the case of E I Dupont India Pvt. Ltd. Vs Union of India [2014(305) E.L.T. 282 (Guj.)] . It is also worth mentioning here that the stay application filed by the revenue department was heard on 28.11.2014 wherein no stay was granted by the Apex Court and the matter was posted for final hearing on 24.02.2015 and the final outcome is still pending in this case.
Amendment made in Rule 5 vide this Budget:- In this budget, a new clause (1A) has been inserted in the Explanation to Rule 5 which specifies that “export goods” means any goods which are to be taken out of India to a place outside India. This insertion by way of explanation has nullified the ratio of the above cited judicial pronouncements of the Gujarat High Court. This explanation has clearly mentioned that export goods means any goods which are to be taken out of India to a place outside India thereby meaning that the deemed exports will be out of the purview of the provision of Rule 5 of the Cenvat Credit Rules, 2004. Hence, the outcome of the SLP in the case of E I Dupont India Pvt. Ltd. will be of less relevance.
Before Parting:- The above analysis clearly reflects that the government is vested with discretionary powers to undo decisions pronounced against them by amending the statutory provision in their interest. Not only this, the assessees may be prepared to face litigations even for the prior period on the ground that the explanation inserted vide Budget, 2015 is clarificatory in nature and is to be applied retrospectively. Well, all the hapless assessees can do is to face the torture of litigation even on settled issues!