Custom, Excise & Service Tax Tribunal
M/S. Sabare International vs Cce, Trichy on 5 March, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal No. E/368/2007
(Arising out of Order-in-Appeal No. 9/2007 dated 26.2.2007 passed by the Commissioner of Customs & Central Excise (Appeals), Trichy)
For approval and signature:
Honble Shri P.K. Das, Judicial Member
1. Whether Press Reporters may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether the Members wish to see the fair copy of the Order?
4. Whether Order is to be circulated to the Departmental authorities?
M/s. Sabare International Appellant
Vs.
CCE, Trichy Respondent
Appearance Shri Raghavan Ramabhadran , Advocate, for the Appellant Shri Parmod Kumar, JC (AR) for the Respondent CORAM Honble Shri P.K. Das, Judicial Member Date of Hearing: 05.3.2014 Date of Decision: 05.3.2014 Final Order No. 40281/2014 The relevant facts of the case, in brief, are that the appellants are engaged in the manufacture and export of made-up textile articles falling under Chapter 63 of the First Schedule to the Central Excise Tariff Act, 1985. The appellant filed a refund claim of Rs.18,67,738/- on 23.8.2006 of accumulated credit availed on input service used in the export of goods in terms of Notification No.5/2006-CE (NT) dated 14.3.2004 issued under Rule 5 of CENVAT Credit Rules, 2004. Show-cause notice dated 22.11.2006 was issued proposing to reject the refund claim under Rule 6 of the CENVAT Credit Rules, 2004 r/w Section 11B of the Central Excise Act, 1944. It has been alleged that the appellant is manufacturing exempted goods and they are not eligible to avail CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004. The adjudicating authority rejected the refund claim. By the impugned order, the Commissioner (Appeals) upheld the adjudication order.
2. The learned counsel on behalf of the appellant submits that show-cause notice proposed to reject the refund claim under Rule 6 of the CENVAT Credit Rules, 2004. But the adjudicating authority and the first appellate authority rejected the refund claim on the ground of violation of First proviso to Rule 5 of the CENVAT Credit Rules, 2004, which is beyond the scope of the show-cause notice. He submits that the first proviso to Rule 5 would apply in respect of duty and in the present case they have filed the refund claim on input service credit and therefore it is not hit by the first proviso to Rule 5. Regarding the other issue, insofar as ineligibility of availment of CENVAT Credit under Rule 6 of the CENVAT Credit Rules, 2004, the learned Advocate drew the attention of Bench sub-rule (6)(v) of Rule 6 of the CENVAT Credit Rules, 2004. In the present case, the appellant executed a LUT which was not renewed at that point which cannot be a reason for rejection of the refund claim. He relied upon the decision of the Tribunal in the case of Well Known Polyesters Ltd. Vs. CCE 2011 (267) ELT 221 and the decision of the Honble Bombay High Court in the case of Repro India Ltd. Vs. Union of India 2009 (235) ELT 614 (Bom.).
3. On the other hand, the learned AR on behalf of Revenue drew the attention of the Bench the relevant portion of the show-cause notice, where it is clearly mentioned the violation of First proviso to Rule 5 of the CENVAT Credit Rules, 2004. It is submitted that Rule 5 was mentioned in the show-cause notice and both the authorities below rightly proceeded within the scope of the show-cause notice. He further submits that the LUT was not renewed and sub-rule 6(v) of Rule 6 would not apply. He further submits that there is no material to draw that they have not filed the drawback claim including the input service credit. It is also submitted that there is no evidence available whether the drawback has been availed under bond or not. He further submits that the execution of LUT is a mandatory condition which cannot be taken lightly and the decision of Well Known Polyesters Ltd. (supra) would not apply.
4. After hearing both sides and on perusal of the records, I find that the appellant filed the refund claim under Rule 5 of the CENVAT Credit Rules, 2004. The relevant portion of Rule 5 as it stood during the relevant period i.e. February 2006, is reproduced below:-
Rule 5 Refund of CENVAT Credit Where any input or input service is used in the final products which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products 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,
(i) duty of excise on any final products 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 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 a rebate of duty under the Central Excise Rules, 2002, in respect of such duty.
5. Commissioner (Appeals) observed that the appellant has availed drawback and they have not followed the prescribed procedure and have not renewed the LUT and therefore it is hit by the First proviso to Rule 5 of the CENVAT Credit Rules, 2004. On a plain reading of the words in respect of such duty in the First proviso to Rule 5 makes it clear that no refund of such credit shall be allowed in respect of such duty, if the manufacturer or provider of output service avails drawback allowed under Customs and Central Excise Duties Drawback Rules, 1995. In the present case, the appellant filed the refund of credit in respect of input service credit. It is contended by the learned AR on behalf of Revenue that there is no evidence available that the drawback claim would not be included with the input service credit. The word drawback defined under Rule 2(a) of Customs and Central Excise Duties Drawback Rules, 1995, as it stood during the relevant period as drawback in relation to any goods manufactured in India and exported, means a rebate of duty chargeable on any imported material or excisable materials used in the manufacture of such goods. There is no material available that the appellant claimed the input service credit in their drawback claim. Hence, I do not find any force in the submission of the learned AR. The other issue is that the appellants are manufacturing exempted goods and they are not entitled to avail CENVAT credit in terms of Rule 6 of CENVAT Credit Rules 2004 and consequently refund of the amount is not eligible. I find that sub-rule (6) (v) of Rule 6 of the CENVAT Credit Rules, 2004, provides that the clauses (i), (ii), (iii) and (iv) to proviso to sub-rule (6) shall not be applicable in the case of excisable goods removed without payment of duty for export under bond in terms of provisions of the Central Excise Rules, 2002. There is no dispute that the goods were exported and the adjudicating authority observed that the appellant did not renew the LUT for the period covered under the refund claim. The Division Bench of the Tribunal in the case of Well Known Polyesters Ltd. (supra) following the decisions of the Honble High Courts in similar situation held as under:-
The second ground taken for rejection of the refund claim is that refund under Rule 5 of Cenvat Credit Rules, 2004 is permissible only if the dutiable goods are exported under bond or LUT. Since the appellant is availing full exemption and not even registered and the exempted goods were not exported under bond, refund has been denied. This issue was considered by the Honble High Court of Himachal Pradesh in the case of CCE v. Drish Shoes Limited - 2010 (254) E.L.T. 417 (HP) and the Honble High Court held that refund of input credit is admissible when exempted goods are exported without execution of bond. Similar was the view taken by the Honble Bombay High Court in the case of Repro India Limited v. UOI [2009 (235) E.L.T. 614 (Bom.)]. Therefore, the conclusion in the impugned order that appellant is not eligible for exemption since the goods have not been exported under bond or LUT, cannot be sustained.
It was also? submitted that execution of bond is only a procedural lapse and its violation should not disentitle the appellant from taking of credit and claiming refund thereof. This was the view taken in the case of Salzer Controls Limited v. CCE, Chennai - 2003 (160) E.L.T. 1169 (Tri.- Chennai). Further the Tribunal also cited the decision in the case of Termax Pvt. Limited - 1992 (61) E.L.T. 352 to come to the conclusion that benefit of exemption or concession should not be denied whenever intended use of material is established by other evidences and just because of procedural violation, that by itself will not disentitle them from taking the benefit. In this case it is not the case of the department that goods have not been exported or appellant did not have the relevant documents for availing credit or inputs have not been used for the manufacture of exported goods. We also take note of the fact that in the case of Tuffropes Private Limited v. CCE, Vapi - 2009 (233) E.L.T. 544 (Tri.-Ahmd.), this Tribunal had taken a view that exempted goods can also be cleared under bond. Further, in the case of Commissioner v. Suncity Alloys Pvt. Limited - 2007 (218) E.L.T. 174 (Raj.) = 2009 (13) S.T.R. 86 (Raj.), the Honble High Court of Rajasthan held that exempted goods cleared for export on payment of duty, manufacturer can claim rebate. All these decisions would show that procedural requirements should not come in the way of legitimate claim for refund.
6. Respectfully following the decision of the Tribunal in the case of Well Known Polyesters Ltd. (supra), the rejection of refund claim on the above grounds are not sustainable. The appeal is allowed, subject to verification of the documents in respect of input service credit by the adjudicating authority.
7. The appeal is allowed in the above terms.
(Dictated and pronounced in open court) (P.K. Das) Judicial Member Rex 6