Refund of unutilized Cenvat of inputs available under Cenvat Credit Rule 5

Commissioner of Central Tax Vs Arcelor Mittal Nippon Steel India Ltd. (CESTAT Hyderabad)

ITAT Hyderabad held that Cenvat credit of inputs used in manufacture of goods exported under bond from a Domestic Tariff Area (DTA) to a Special Economic Zone (SEZ) unit is available as refund under rule 5 of Cenvat Credit Rules, 2004.

Facts- The refund claim was filed by the appellants u/r. 5 of Cenvat Credit Rules, 2004 read with Notification No.05/2006-CE(N.T.) dated 14.03.2006 on 04.08.2008 with respect to unutilized/accumulative Cenvat credit balance of Rs.44,65,69,866/-. The said Cenvat credit is attributable to the inputs used in manufacture of goods exported under bond to a SEZ unit during the said quarter.

The department observed that 326139.994 MTs of goods were cleared by the appellants under bond and under letter of undertaking. However, the matter was found to be pending before the Hon’ble High Court of Gujarat vide Special Civil Application No.9713 of 2008 on the ground that, “the words export or import or Domestic Tariff Area are defined under the SEZ Act for a specific purpose and the scope thereof would not automatically be extended in other Acts.” The said ground was opined to be contradictory to the claim of refund filed by the appellants u/r 5 of Cenvat Credit Rules, 2004. Accordingly, the aforesaid refund claim was proposed to be rejected vide Show Cause Notice No. 10/38/2008 dated 03.11.2008. The proposal was confirmed vide Order-in-Original No. 127/2009 dated 12.03.2010. The appeal thereof, however, has been allowed vide Order-in-Appeal No. 56/2010 dated 02.09.2010. Being aggrieved of the said order that the department has assailed the same vide the present appeal.

Conclusion- Held that it clear that the transaction of the present case was the case of export which was not subject to the customs duty. However, it was export, hence the refund of Cenvat credit of input used in the manufacture of goods exported was available under Rule 5 of CCR, 2004 to the assessee.

The adjudication before Hon’ble Gujarat High Court was absolutely not an impediment for considering the said refund under Rule 5, CCR. Accordingly, we do not find any infirmity with the findings of the Commissioner (Appeals), wherein he has held that the judgment of Hon’ble Gujarat High Court is totally unrelated to the refund claim filed by the appellant and that refund has wrongly been rejected on the pretext of pendency of the SCA before Hon’ble Gujarat High Court. It has wrongly been proposed in the impugned show cause notice and wrongly confirmed in the impugned Order-in-Original that the stand of the assessee/respondent in the refund claim was contradictory to his contention before Hon’ble High Court of Gujarat. The said findings of Commissioner (Appeals) are therefore hereby upheld.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

Present appeal has been filed to assail the Order-in-Appeal No. 56/2010 dated 02.09.2010. The facts in brief are as follows:

1.1 That M/s. Essar Steel Limited, Visakhapatnam now known as M/s. Arcelor Mittal Nippon Steel India Ltd (herein after referred as Arcelor) are engaged in manufacture of “Iron Ore Pellets”. The appellants were availing the facility of Cenvat credit under Cenvat Credit Rules, 2004. A refund claim of Rs.27,40,82,605/- (Rupees Twenty Seven Crore Forty Lac Eighty Two Thousand Six Hundred and Five Only) was filed by the appellants under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No.05/2006-CE (N.T.) dated 14.03.2006 on 04.08.2008 for the quarter; April 2008 to June 2008 with respect to unutilized/accumulative Cenvat credit balance of Rs.44,65,69,866/-. The said Cenvat credit is attributable to the inputs used in manufacture of goods exported under bond to a SEZ unit during the said quarter.

1.2 The department observed that 326139.994 MTs of goods were cleared by the appellants under bond and under letter of undertaking. However, the matter was found to be pending before the Hon’ble High Court of Gujarat vide Special Civil Application No.9713 of 2008 on the ground that, “the words export or import or Domestic Tariff Area are defined under the SEZ Act for a specific purpose and the scope thereof would not automatically be extended in other Acts.” The said ground was opined to be contradictory to the claim of refund filed by the appellants under Rule 5 of Cenvat Credit Rules, 2004. Accordingly, the aforesaid refund claim was proposed to be rejected vide Show Cause Notice No. 10/38/2008 dated 03.11.2008. The proposal was confirmed vide Order-in-Original No. 127/2009 dated 12.03.2010. The appeal thereof, however, has been allowed vide Order-in-Appeal No. 56/2010 dated 02.09.2010. Being aggrieved of the said order that the department has assailed the same vide the present appeal.

2. We have heard Shri A.V.L.N. Chary, learned Authorized Representative for the Department and Shri Vishal Agarwal and Ms. Riya Jindal, learned Counsels for the respondent.

3. It is submitted on behalf of the department that Commissioner (Appeals) has failed to observe that out of the closing balance of Rs.44,65,69,866/- availed in the input Cenvat credit amount of the assessee/respondent as on 30.06.2008, no amount was virtually attributable to the Cenvat credit accumulated on account of the clearances made by the assessee for export/deemed export during the quarter April 2008 to June 2008. The Original Adjudicating Authority has appreciated the same with utmost clearity in para 15 of the O.I.O dated 12.03.2010. It is further submitted that refund is otherwise allowed only when a manufacturer is not is a position to utilize the import credit allowed against the goods exported during the quarter to which such refund claim relates to. It is further mentioned that since the Arcelor/assessee/respondent had utilized Cenvat credit of Rs.18,25,05,745/- during December 2009 to March 2010, leaving the balance of Cenvat credit to Rs.9,15,76,860/- by the time of passing of O.I.O dated 12.03.2010, the same was rightly rejected by the Original Adjudicating Authority. Commissioner (Appeals) has committed an error while not appreciating the non-availability of requisite balance of unutilized Cenvat credit, the refund whereof was claimed.

3.1 Learned Departmental Representative also mentioned that delay in considering the refund claim was purely because of the pendency of the appellants’ case before Hon’ble Gujarat High Court, which had bearing on the sanction of unutilized Cenvat credit amounting to Rs.27,40,82,605/-. Since the delay was unintentional and for the reasons beyond the control of the Original Adjudicating Authority that the interest has rightly not been given to Arcelor. Findings of Commissioner (Appeals) are not sustainable for the above reasons. The order is accordingly prayed to be set aside and appeal is prayed to be allowed.

4. To rebut these submissions learned Counsel for the Arcelor/ assessee/respondent has submitted that Commissioner (Appeals) has rightly observed the compliance of Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 05/2006-CE(NT) dated 14.03.2006 by the respondent/assessee, hence, there is no infirmity in those findings. It has rightly been appreciated that the issue involved in Special Civil Application before Hon’ble Gujarat High Court pertains to the levy of export duty under Customs Act, 1962 in respect of the movement of goods from the DTA to the SEZ, and that it was totally unrelated and unconnected to the impugned refund claim. Also that the outcome of said Special Civil Application had no bearing on the present claim. Learned Counsel further submitted that the order of Original Adjudicating Authority otherwise cannot be considered as correct as the said authority has travelled beyond the scope of the show cause notice by holding that the credit accumulation on account was only to the tune of Rs.2,16,37,636/-. Whereas the show cause notice was issued only on the contention that the stand of the assessee/respondent before Hon’ble Gujarat High Court was contrary to the stand taken in the refund claim. Commissioner (Appeals) has rightly held the O.I.O to be the one beyond the scope of show cause notice. However, the findings of Commissioner (Appeals) declining the interest liability of the department on the impugned refund amount are objected but impressing upon that the refund has been held to very much be in compliance of Rule 5 of CCR, 2004 and the respective notification that the appeal of the department is prayed to be dismissed.

5. After hearing the rival contentions of the parties and perusing the entire records, we observe and hold as follows:

The present litigation arose out of the show cause notice dated 03.11.2008 which proposed the rejection of the refund claim of an amount of Rs. Rs.27,40,82,605/- dated 04.08.2008 for a quarter of April 2008 to June 2008 as was filed under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 05/2006 dated 14.03.2006. Foremost Rule 5 needs to be looked into. It reads as follows:

“Where any input or input service is used in the manufacture of final product which is cleared for export under band or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(1) duty of excise on any final product cleared for home consumption or for export on payment of duty;

or

(ii) service tax on output service, and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:

Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.

Provided further that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service.

Explanation: For the purposes of this rule, the words ‘output service which is exported’ means the output service exported in accordance with the Export of Services Rules, 2005.

6. The SEZ units/Special Economic Zone, as per SEZ Act, 2005, is specifically delineated duty free enclave within the national borders of a country that has more liberal economic laws than rest of the country and shall be deemed to be a foreign territory for the purposes of trade operations, duties and tariffs (Section 53 of the SEZ Act). As per Section 2(m)(ii) of SEZ Act, 2005, export means supplying goods, or providing services, from the Domestic Tariff Area (DTA) to a Unit or Developer in the same or in the different SEZ. Central Government vide Notification No. 11/2002-Central Excise (N.T.), dated 1^st March, 2002 directs that refund of Cenvat credit shall be allowed in respect of:

(a) input or input service used in the manufacture of final product which is cleared for export under bond or letter of undertaking;

(b) input or input service used in providing output service which has been exported without payment of servie tax, Subject to safeguards, conditions and limitations, set out in the Appendix to this notification. (7 in number) 1st and 7th Condition are more applicable which reads as:

“1. The final product or the output service is exported in accordance with the procedure laid down in the Central Excise Rules, 2002, or the Export of Services Rules, 2005, as the case may be.

7. The refund of excise duty or service tax is allowed by the Deputy commissioner of Central Excise of the Assistant Commissioner of Central Excise, as the case may be.”

7. There is no denial to the fact that the assessee/respondent has cleared its final product to SEZ unit i.e. from DTA to SEZ and accordingly, the transaction in question admittedly was export of finally manufactured goods. Following are also the admitted facts:

(i) the impugned refund claim along with the connected documents for the Quarter April 2008 to June 2008 was filed within the time limit of one year stipulated under Section 11B of Central Excise Act, 1944.

(ii) The Range Officer had reported that there were no government outstanding dues against the claimant.

(iii) Since the refund claim pertains to the refund of Cenvat credit, the same was out of the bar unjust enrichment in terms of para C of provision to Section 11B(2) of Central Excise Act, 1944.

(iv) The Bills of export under which the assssee/respondent had cleared iron ore pallets for export/deemed export were not in the nature of free shipping bills or drawback shipping bills.

(v) No drawback/rebate was being claimed against the said export/deemed export.

(vi) No condition of Notification No. 05/2006-CE(N.T.) dated 14.03.2006 has been violated by assessee/respondent.

8. All these admissions when read with aforementioned Rule 5 and conditions of Notification No. 05/2006-CE(N.T.), dated 14.03.2006, it stands clear that the appellant was entitled for the impugned refund. The refund was proposed to be rejected only on the ground of Special Civil Application being filed by the appellant before Hon’ble High Court of Gujarat. The stand of appellant in that application was that the transfer of manufactured goods from DTA to SEZ amounts to export for the purpose of SEZ Act only and as such cannot be automatically extended for the other acts. The show cause notice proposed that said stand was contrary to the submissions of the appellant made in impugned refund claimed under Rule 5 of CCR, 2004. It is observed from the record that the issue before Hon’ble Gujarat High Court raised was, “whether supplies to SEZ by a DTA amounts to an export under Customs Act, 1962 as well”. However, the issue in the present appeal is observed to be the one with regard to the claim of refund of accumulated Cenvat credit under Rule 5 of CCR, 2004. Hence, we are of the opinion that the stand of Original Adjudicating Authority that the refund claim is premature due to the similar matter being subjudiced before Hon’ble High Court, is a wrong observation.

9. We further observe that the said Special Civil Application stands decided by Hon’ble High Gujarat high vide their judgment dated 04.11.2009 reported as 2010 (249) ELT 3 (Guj.), it was held therein that Customs Act defines export as an activity of taking goods out of the territory of India. The said definition of export in Customs Act has not be amended to incorporate the movement of goods from DTA to SEZ as taxable event and entailing export duty. Accordingly, the movement by assessee/Arcelor/Essar Steel Ltd. was denied to be a taxable event under customs law. These observations when read with the aforesaid provision i.e. Section 53 of the SEZ Act, makes it clear that the transaction of the present case was the case of export which was not subject to the customs duty. However, it was export, hence the refund of Cenvat credit of input used in the manufacture of goods exported was available under Rule 5 of CCR, 2004 to the assessee. The adjudication before Hon’ble Gujarat High Court was absolutely not an impediment for considering the said refund under Rule 5, CCR. Accordingly, we do not find any infirmity with the findings of the Commissioner (Appeals), wherein he has held that the judgment of Hon’ble Gujarat High Court is totally unrelated to the refund claim filed by the appellant and that refund has wrongly been rejected on the pretext of pendency of the SCA before Hon’ble Gujarat High Court. It has wrongly been proposed in the impugned show cause notice and wrongly confirmed in the impugned Order-in-Original that the stand of the assessee/respondent in the refund claim was contradictory to his contention before Hon’ble High Court of Gujarat. The said findings of Commissioner (Appeals) are therefore hereby upheld.

10. Further, it is observed that the Commissioner (Appeals) has held the order of Original Adjudicating Authority to have been beyond the scope of show cause notice, it is observed that in the show cause notice, refund claim was proposed to be rejected on the ground that the issue is dependent on the outcome of the judgment of the Hon’ble Gujarat High Court, whereas, the Original Adjudicating Authority has rejected the claim not only on the said proposed ground but also on the ground that the amount of Cenvat credit availed on imports during the relevant quarter April 2008 to July 2008 was set off against the duty paid on the goods cleared during the said quarter, where after only an amount of Rs. Rs.2,16,37,636/- was available to the appellants against the refund claim of Rs.27,40,82,605. It is observed that entire tabular calculation exercise is absolutely beyond the scope of show cause notice. There is no error committed by Commissioner (Appeals) when the O.I.O has been held to have been passed on some extraneous factors which were neither proposed in the show cuase notice nor were related to the issue. Hon’ble Apex Court in a decision in the case of Commissioner of Central Excise Nagpur Vs. Ballarpur Industries Ltd. reported as 2007 (215) ELT 489 (S.C.) has held that show cause notice is the foundation in the matter of levy and recovery of duty, penalty and interest. If there is no invocation in the show cause notice to a particular provision, it would not be upon to the Adjudicating Authorities to invoke the said provision. In its earlier decision also in the case of Commissioner of Customs, Mumbai Vs. Toyo Engineering India Limited reported as 2006 (201) ELT 513 (S.C.), Hon’ble Apex court had held that the grounds which did not find mention in the show cause notice cannot form the basis of confirmation of demand as the department is not allowed to travel beyond the grounds in the show cause notice. Based on these decisions and above observations, we do not find any infirmity in the order of Commissioner (Appeals) while rejecting the appeal on the ground that the Original Adjudicating Authority has travelled beyond the scope of notice.

11. In light of the entire above discussion, the order under challenge is hereby upheld. Consequent thereto, the appeal of the department is hereby rejected.

[Order pronounced in the open Court on 23.09.2022]