Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, ... vs Alfa Exports (100% Eou) on 17 November, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Application(s) Involved: ST/CROSS/162/2010 in ST/1031/2009-SM Appeal(s) Involved: ST/1031/2009-SM [Arising out of Order-in-Appeal No. 360/2009 dated 18/09/2009 passed by the Commissioner of Central Excise, Mangalore] Commissioner of Central Excise, Customs and Service Tax Belgaum No. 71, Club Road, Central Excise Building, Belgaum - 590 001 Karnataka Appellant(s) Versus Alfa Exports (100% EOU) Survey No. 7/4M, Tara Nagar Village, Sandur Taluk, Bellary Respondent(s)
Appearance:
Shri Parashiva Murthy, AR For the Appellant None For the Respondent Date of Hearing: 17/11/2016 Date of Decision: 17/11/2016 CORAM:
HON'BLE SHRI S.S GARG, JUDICIAL MEMBER Final Order No. 21202 / 2016 Per: S.S GARG The present appeal filed by the Revenue is directed against the impugned order passed by the Commissioner (Appeals) dated 18.09.2009 vide which the Commissioner (Appeals) has allowed the appeal of the respondent seeking refund of unutilized cenvat credit under Rule 5 of the Cenvat Credit Rules 2004. Briefly the facts of the case are that the appellant is a holder of In-Bond manufacture Sanction Order for the EOU operations and to carry the operation relating to processing of Iron Ore and export of the same. They are also having a Private Bonded Warehouse for storage without payment of duty as per Customs Notification 11/2005. The assessee filed a refund claim for Rs. 26,22,828/- (Rupees Twenty Six Lakhs Twenty Two Thousand Eight Hundred and Twenty Eight only) before the Assistant Commissioner, Bellary under Rule 5 of the Cenvat Credit Rules on input services like Telephone Service, Clearing and Forwarding, Business Auxiliary Service, Crushing and Screening, Technical Testing, Transport of Goods by Road up to Port, Erection and Commissioning Service which were used in or in relation to manufacture of product manufactured by them viz. Iron Ore Fines/Lumps falling under Chapter heading 2601 of Central Excise Tariff Act 1985 during the period from February 2008 to July 2008. The Assistant Commissioner vide his Order-in-Original dated 04.03.2009 rejected the refund claim on the ground of nexus. Aggrieved by the said order, the assessee filed the appeal before the Commissioner (Appeals) who allowed the appeal of the assessee relying upon the decision of the CESTAT, Bangalore in the case of M/s. ANZ International Vs. CCE, Customs, Bangalore reported in 2008 (224) ELT 573 (Tri.-Bang.). Aggrieved by the said order, the Revenue has filed the present appeal.
2. I have heard the learned AR. None has appeared on behalf of the respondent.
3. The learned AR submitted that the impugned order is not sustainable in law as the assessee is not entitled for cenvat credit on input or input services in terms of provisions contained in Rule 6(1) of Cenvat Credit Rules 2004 as the final product said to have been manufactured by them is unconditionally exempted from payment of duty or chargeable to nil rate of duty. He further submitted that the goods are unconditionally exempted under Notification issued under Section 5A of Central Excise Act 1944 and not on account of the fact that the ore is exported.
4. Here it is pertinent to mention that the learned Commissioner (Appeals) has allowed the appeal of the assessee on the basis of the decision of CESTAT, Bangalore in the case of ANZ International cited supra. The relevant paras of which are reproduced herein below:
5. The appellants are 100% EOU. They received dutiable inputs from certain dealers for the manufacture of the finished products which are to be exported. They availed Cenvat credit on the duty paid inputs. Since they were not in a position to utilize the credit, they applied for refund of the Cenvat credit availed by them. The reason is that all their products were exported and there was no domestic clearance. The lower authority rejected the refund claims on the ground that in terms of sub-rule(1) of Rule 6 of CENVAT Credit Rules, the appellants could not have taken credit of duty paid on the inputs because the final products are subjected to NIL rate of duty. The appellants were aggrieved over the orders of the lower authority. They approached the Commissioner (Appeals). The Commissioner (Appeals) also held that the goods which are exported are subjected to NIL rate of duty. In this view of the things, he said that the goods are actually exempt. Once it is held that the finished products are exempt from duty then, in terms of Rule 6(1) of the CENVAT Credit Rules, even the credit could not have been availed. Once the appellants are not entitled for the credit, there is no question of refunding the same. This is the argument of the Revenue. The learned Commissioner (Appeals) upheld the orders of the lower authority.
5.3 On a very careful consideration of the issue, I find that the lower authorities have held that credit of duty paid on inputs is not admissible by virtue of Rule 6(1) of the CENVAT Credit Rules. However, they have not properly appreciated that in the same Rule, sub-rule (6) carves out certain exceptions to Rule 6(1). In fact, the Commissioner (Appeals) in the impugned orders, has given the relevant extract of Rule 6(6), which is reproduced below :-
Rule 6 (6). The provisions of sub-rules (1), (2) (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either -
(i) cleared to a unit in a special economic zone; or
(ii) cleared to a hundred per cent export-oriented undertaking; or
(iii) cleared to a unit in an Electronic Hardware Technology Park of Software Technology Park; or
(iv) supplied to the United Nations or an International organization for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 108/95-Central Excise, dated the 28th August, 1995, number G.S R. 602(E) dated the 28th August, 1995; or
(v) cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002; or
(vi) gold or silver falling within Chapter 71 of the said First Schedule, arising in the course of manufacture of copper or zinc by smelting; or
(vii) all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional, duty leviable under section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of Notification No. 6/2002-Central Excise dated the 1st March, 2002 or Notification No. 6/2006-Central Excise dated the 1st March, 2002, as the case may be. On a careful reading of Rule 6(6) of the CENVAT Credit Rules, it is very clear that the provisions of sub-rule (1), (2), (3) and (4) shall not be applicable to goods removed without payment of duty, which are actually cleared for export under bond in terms of the provisions of the Central Excise Rules, 2002. The lower authorities were not prepared to give the benefit of this Rule to the appellant on the ground that these goods were exported under the 100% EOU Scheme and not under the Central Excise Rules, 2002. This approach is not correct. Any exported good does not suffer the incidence of Central Excise duty. That is why, there is a provision for exporting the goods under bond. In the case of 100% EOUs, the input can be imported free of duty. They can be obtained indigenously also free of duty. However, in certain circumstances, when duty is paid on the inputs, then the appellants are entitled for the Cenvat credit. There is nothing in the Rules which prohibits 100% EOUs availing Cenvat credit. Rule 5 of the CENVAT Credit Rules provides for refund of Cenvat credit where the appellants are not able to utilize the same. In the present case, this is precisely the case. The appellants had availed Cenvat credit and they were not in a position to utilize the same for the simple reason that all the products were exported. Therefore, in terms of Rule 5 of the CENVAT Credit Rules, they are rightly entitled for the refund. The Tribunal, in the case of Sterlite Optical Technologies case (cited supra), has held that in the case of 100% EOU, prima facie, there is no bar on the avilment of Cenvat credit. Further, the Tribunal, in the case of Jobelle v. CCE (cited supra), has held that the Letter of Undertaking accepted in lieu of bond for export even though finished goods were exempted, refund of Cenvat credit on inputs and packing materials are admissible in terms of Rule 5 of the Cenvat Credit Rules. In view of this clear position, I hold that the 100% EOU is entitled to take Cenvat credit on the duty on the inputs procured indigenously and when they are not in a position to utilize the same, they are entitled for the benefit of the refund under Rule 5 of the CENVAT Credit Rules. Therefore, the impugned Orders have no merits. They are liable to be rejected. Hence, I allow the appeals with consequential relief.
The above decision of the Honble CESTAT was challenged by the Department before Honble Karnataka High Court. Karnataka High Court in the case of CCE, Bangalore Vs ANZ International 2009 (233) E.L.T. 40 has held in para 3 as follows:
3. With reference to the above said grounds urged in this appeal, we have carefully examined the same to find out as to whether the aforesaid substantial question of law would arise or not for our consideration in this Appeal. The CESTAT, having regard to the undisputed fact that the respondent is 100% Export Oriented Unit (for short ECU) in respect of which, benefit of CENVAT Credit Rules, 2004 is available for the inputs which will be used for manufactured goods of 100% export. Therefore, the Tribunal has applied Rule 6(6) and recorded the reasons stating that there is a provision of exporting the goods under bond. In the case of 100% EOUs, the input can be imported free of duty and they can obtain indigenously also free of duty. When duty is paid on the inputs, then the appellants are entitled for the Cenvat credit facility under the Rules Cenvat Credit Rules. There is nothing in the Rules which prohibits 100% EOUs availing Cenvat credit. Rule 5 of the said Rules provides for refund of Cenvat credit availed by the exporter where they do not utilize the goods as inputs for manufacture of 100% export. The case on hand is the precise case wherein the respondent has availed the Cenvat credit facility. They were not in a position to utilize the credit, they applied for refund of the Cenvat credit availed by them. The reason is that all their products were exported and there was no domestic clearance. Therefore, in terms of Rule 5 of the Rules, they are riglitiy entitled for the refund of the duty paid to the department. The learned counsel for the appellant has pointed out that in the case of Sterlite Opitcal Technologies Ltd. v. CCE, Aurangabad - 2006 (201) E.L.T. 428 (Tri.-Mumbai), wherein it is held that letter of undertaking accepted in lieu of bond for export even though finished goods were exempted, refund of Cenvat credit on inputs and packing materials are admissible in terms of Rule 5 of the Rules. Therefore, the Tribunal has held that 100% EOU is entitled to take Cenvat credit on the duty of the inputs procured indigenously and when they were not in a position to utilize the same, they are entitled for the benefit of the refund under Rule 5 of the Rules. Therefore, the orders impugned in the Appeal before the CESTAT held to be bad in law and the same were set aside. Therefore, we do not find that no substantial question of law does arise in this Appeal for our consideration to answer the same in favour of the Revenue. Accordingly, the appeal is devoid of merits and therefore it must fail and is dismissed. 4.1. Further the learned Commissioner (Appeals) has also held that all the input services are directly used in relation to the processing of iron ore and they are admissible for credit and all the input services fall in the definition of input service as contained in Rule 2(l) of the Cenvat Credit Rules.
5. After going through the impugned order, I do not find any infirmity in the order of the learned Commissioner (Appeals) and I upheld the same by dismissing the appeal of the Revenue. Cross Objection also accordingly disposed of.
(Operative portion of the Order was pronounced in Open Court on 17/11/2016) (S.S GARG) JUDICIAL MEMBER iss