Customs, Excise and Gold Tribunal - Bangalore
Sanghi Textiles Limited vs The Commissioner Of Customs And Central ... on 26 July, 2006
Equivalent citations: 2006(113)ECC568, 2006ECR568(TRI.-BANGALORE)
ORDER T.K. Jayaraman, Member (T)
E/1074/2005
1. M/s. Sanghi Textiles Limited, the appellant, has filed this appeal against the Order-in-original No. 14/2005 dated 20.07.2005 passed by the Commissioner of Customs & Central Excise, Hyderabad-III Commissionerate.
2. The brief facts are as follows:
The appellant took deemed Cenvat Credit on Grey Fabrics used in the manufacture of processed fabrics in terms of Notification No. 53/2001 and 6/2002 issued under Rule 11 of the Cenvat Credit Rules 2002. Some of the fabrics processed by utilizing the grey fabrics were cleared to 100% EOUs and to the units procuring goods in terms of Notification No. 43/2001-CE for use in the manufacture or processing of goods meant for export. The credit accumulated is to be utilized towards payment of duties on the final products. As the appellant supplied goods to 100% EOUs without payment of duty, all the credit accumulated could not be utilized. They could utilize credit to the tune of Rs. 65 lakhs. However, Revenue issued Show Cause Notice for recovery of the credit availed on the ground that the appellants are not entitled for availing deemed credit for the reason that the final products were not exported under bond and cleared only to other 100% EOUs/Merchant Exporters. The Commissioner held that the credit utilized by the appellant is inadmissible for the reason that they failed to produce any evidence in support of their claim that the goods cleared by them without payment of duty were in fact exported under bond. Hence, in the impugned order he demanded an amount of Rs. 65,00,000/- being the Cenvat Credit wrongly availed/utilized towards payment of duty during the months of November 2003 and July 2004 under Rule 12 of the Cenvat Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944. Further, he demanded interest under Section 11AB of the CE Act, 1944. He imposed a penalty of Rs. 5,00,000/- under Rule 13 of the Cenvat Credit Rules, 2002. The appellants strongly challenge the impugned order.
3. S/Shri G. Shiva Dass, the learned Advocate and G. Venkatesh, Consultant, appeared for the appellants and Shri R.K. Singla the learned JCDR for Revenue.
4. The learned Advocate urged the following points:
(i) The refund of the deemed credit in question is sought to be denied on the ground that the supplies made to EOUs/Merchant Exporters are not covered by the expression 'export under bond'.
(ii) The term "Export" has not been defined in the Central Excise Act, 1944/Central Excise Rules 2001/2002. The term 'Export' has to be understood to include Deemed Export also and the clearances made to other Merchant Exporters, who would ustilise the goods cleared by the appellants for further export.
(iii) The conclusion drawn by the lower authority that the expression 'Export under bond' as used in Rule 6 of the Cenvat Credit Rules would not cover Deemed Export, is not sustainable.
(iv) The supplies made to an EOU is recognized as Deemed Export in terms of Chapter 10 of the EXIM Policy, applicable to the relevant period. Hence, the supplies made to EOUs are entitled to 'Deemed Export' benefits under the EXIM Policy, which includes Deemed Export drawback and refund of terminal excise duty on the finished goods.
(v) As the EXIM Policy recognizes the supplies made to EOUs as falling under the category of Deemed Export and not as a clearance made to DTA, the clearance made by the appellants to the EOUs/Merchant Exporters cannot be held to be the clearance falling outside the scope of exports. The following decision was relied on:
Jumbo bags Ltd. v. CCE .
(vi) Further, the Commissioner (Appeals)'s order, setting aside the original authority's order rejecting the refund, supports the stand of the appellants.
5. The learned JCDR reiterated the departmental view.
6. We have gone through the records of the case carefully. The appellants availed Deemed Credit vide Notifications 53/2001 and 6/2002. The deemed credit is normally utilized towards payment of duty of excise on clearance of the final products. However, as per proviso to para 3 of the Notification, the credit in respect of declared inputs used in the final products cleared for export under bond shall be allowed to be utilized towards payment of duty of excise on any final product cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer. In the present case, the appellants were not in a position to utilize beyond Rs. 65 lakhs out of the deemed credit accumulated. Hence, they filed a refund claim to the lower authority for refund of the credit not utilized. The lower authority rejected the refund on the ground that there is no evidence of export by the appellants. In fact, the refund amount relating to the accumulated credit pertains to the goods cleared to 100% EOUs. The stand of the department is clearance to 100% EOUs cannot be termed as exports. The Commissioner (Appeals) set aside the lower authority's order rejecting the refund. However, with regard to the amount of Rs, 65 lakhs utilized by the appellant, Revenue proceeded to recover the same on the ground that the appellants are not entitled even to take the credit: The availment of credit on grey fabrics received is governed by the Notifications 53/2001 and 6/2002. So long as the appellants satisfy the conditions of the notification, the credit cannot be denied. The final products can be cleared on payment of duty. In that case, the credit accumulated would be utilized to pay the duty. In the present case, this is what has happened. An amount of Rs. 65, lakhs has been utilised for payment of duty on final products cleared. Therefore, there is no substance in Revenue's contention that the appellants are not entitled for the credit. Thus, we do not find any merit in the OIO, which seeks to recover an amount Rs. 65 lakhs/Hence, the same is set aside and the appeal is allowed.
E/832/2005
7. Revenue has filed this appeal against the OIA No. 119/2005 dated 31.05.2005 passed by the Commissioner of Customs & Central Excise (Appeals-l), Hyderabad.
8. The respondents received Grey Fabrics for processing and took deemed credit under Notifications 53/2001-CE(NT) dated 29.6.2001 and 6/2002-CE(NT) dated 1.3.2002 issued under Rule 11 of Cenvat Credit Rules. They could utilise this credit only to the extent of Rs. 65 lakhs. In respect of the balance amount, they filed two refund claims for the periods from 1.3.2001 to 28.02.2002 and 01.03.2002 to 22.01.2003 respectively. The lower authority rejected the refund claim on the following grounds:
(i) It is observed from the documents submitted that the processed fabric was supplied to EOUs under ARE-3A procedure which basically falls under Rule 20 of CE Rules.
(ii) The goods were not exported under bond in terms of the provisions of Rule 19(2) or Rule 19(3) as claimed by the assessee.
(iii) The goods removed from the factor/ of production to the warehouse under ARE-3 fall within the provisions of Rule 20, where there is no legal provision to refund the deemed Cenvat credit under Central Excise Act/Rules or Cenvat Credit Rules.
(iv) No evidence of export under bond or ultimate export by the manufacturer/merchant exporter is available, and Clause 3 of notification No. 6/2002 dated 1.3.2002 read with Section 11B of CE Act, 1944 cannot be applied for granting refund of any unutilized deemed Credit.
(v) The refund of terminal excise duty is to be dealt by Director of Foreign Trade in terms of Para 8.2(b) and Para 8.3 of the Import and Export Policy 2002-2007.
(vi) The deemed credit under Rule 11 of the Cenvat Credit Rules can be availed only when the manufacturer exports under bond in terms of Rule 19 by following ARE-I Procedure. The applications for refund have been submitted claiming exports in terms of Sub-rule 2 of Rule 19 of Central Excise Rules read with Rule 5 of Cenvat Credit Rules, 2000 and the assessees are not eligible for refund of any unutilized Cenvat credit in terms of Rule 5 of Cenvat Credit Rules.
9. The respondents approached the Commissioner (Appeals), who passed the impugned order, allowing the appeal of the respondents with consequential relief. The Commissioner (Appeals) has given a finding that Paragraph 3 of the 'Deemed Export' Notifications does not specify that the export should be only under Rule 19 of the relevant Rules in vogue. She has stated that the clearances of the respondents fall within the principle laid down by the Tribunal in the case of CCE, Ahmedabad v. Omkar Textiles 2002 (148) ELT 461 (Tri.-Mumbai) wherein it is held that credit can be taken of duty paid on inputs used in processed fabrics which were cleared without payment of duty under Notification 47/94-CE and used in manufacture of processed fabrics. She has also relied on the decision in UIC Wires .
10. Revenue has come in appeal against the impugned order on the following grounds:-
(i) In the instant case, the goods were neither cleared for home consumption on payment of duty nor were exported under bond. Hence, the deemed credit itself is not available to the respondents and the question of refund of the same does not arise at all.
(ii) The refund claim is also time barred for the following reasons:
a. The relevant date for the refund in this case is the date of exportation, though the goods were not exported under bond by the assessee, without prejudice to this and considering even the assessee's contention of deemed export, the claim of refund is filed much beyond six months from the date of exportation. This alone is sufficient to reject the respondents' claim.
b. Any refund of claim of excise duty has to be invariably dealt within the purview of Section 11B of the Central Excise Act, 1944 and any further rules and notifications with respect to refunds are to be dealt under the provisions of this Section only.
(iii) The Commissioner (Appeals) has not discussed anything regarding limitation though in para 10, she has mentioned Section 11B.
(iv) The Commissioner (Appeals) has relied on the decision of the Tribunal in the case of Omkar Textiles and UIC Wires (both cited supra). These cases are distinguishable.
11. The learned JCDR reiterated the grounds of appeal.
12. The learned Advocate, Shri G. Shiva Dass, urged the following points:
(i) With regard to the ground that the goods were not exported nor cleared for home consumption, the respondents submit that the goods have been cleared in terms of Rule 19 and 20 of the Central Excise Rules, 2002. These goods have been used by the EOUs which have exported the goods either as such or have used them in the manufacture of goods which have been exported.
(ii) It is a settled law that even if the goods cleared by an assessee is used in the manufacture of goods which are exported, the same would be considered as exports and the assessee would be entitled to claim refund of credit taken if he cannot use the same for payment of duty. The following case-laws were relied on:
a. Gulshan Prints P. Ltd. v. CCE, Surat b. CCE, Ahmedabad v. Omkar Textiles 2002 (148) ELT 461(Tri.-Mumbai) c. CCE v. Natco Pharma by Supreme Court as reported in 2005 (186) ELT A 210 (SC) d. SV Business Pvt. Ltd. v. CCE, Thane-1 2006 (73) RL 427(CESTAT-Mum) e. CCE, Kolkata-III v. UIC Wires Ltd.
f. Navbharat Industries v. CCE, Thane-1 2006 (133) ECR 04 76 (Tri. -Mumbai)
(iii) The department has accepted that the proof of exports was submitted to the Commissioner (Appeals). Once it is accepted that the goods are exported and documents were produced to the department, at any stage, it cannot be a ground for rejecting the refund claim.
(iv) As regards limitation, the department has taken a new ground at this stage. The Show Cause Notice did not propose to reject the refund claim on the ground of limitation. This point was never an issue in the OIO or in the OIA. It is only at this stage, the department has brought in this argument which is not tenable. In any case, the respondents submit that the refund claim was well within time.
(v) The refund of Deemed Credit is sought to be denied on the ground that the supplies made to EOUs/Merchant Exporters are not covered by the expression 'export under bond'.
(vi) The term 'Export' has to be understood to include Deemed Export in the absence of a definition of 'Export' either in the Central Excise Act/Central Excise Rules or in the Cenvat Credit Rules.
(vii) Supplies made to an EOU is recognized as Deemed Export in terms of Chapter 10 of the EXIM Policy.
(viii) The decision of the Tribunal, in the case of Jambo Bags Ltd. v. CCE is relied on.
13. We have gone through the records of the case carefully. The Revenue contends that the Deemed Credit itself is not available to the respondent when the goods are neither cleared for home consumption on payment of duty nor were exported under bond. It is stated that in the present case, the goods were not exported under bond, therefore, there is no question of any Deemed Credit and hence, the question of its refund does not arise at all.
13.1 Let us examine the stand taken by the Revenue in the light of the relevant rules and Notifications:
The respondents are the processors of Polyester Textiles falling under Chapters 52, 54 and 55 of the Schedule to the Central Excise Tariff Act, 1985. Normally, when manufacturers receive various inputs on which Central Excise duty has been paid, they are entitled to take credit of the duty paid. This credit is known as Cenvat Credit. The availing of Cenvat Credit by a manufacturer or purchaser is governed by Cenvat Credit Rules 2001/2002. The credit is taken on the basis of the duty paying documents viz. invoices. The actual duty paid is mentioned in the invoices and this amount is taken as credit. This is the normal procedure. However, under Rule 11 of the Cenvat Credit Rules 2001-2002, the Central Government is empowered to notify the goods for Deemed Cenvat Credit. Rule 11 is reproduced herein below:
Rule 11. Power of Central Government to notify goods for deemed CENVAT credit.
Notwithstanding anything contained in Rule 3, the Central Government may, by notification declare the inputs on which the duties of excise, or additional duty of customs paid, shall be deemed to have been paid at such rate or equivalent to such amount as may be specified in the said notification and allow CENVAT credit of such duty deemed to have been paid in such manner and subject to such conditions as may be specified in the said notification even if the declared inputs are not used directly by the manufacturer of final products declared in the said notification, but are contained in the said final products.
Notification No. 53/2001-CE(NT) dated 29.06.2001 and Notification No. 6/2002-CE(NT) dated 01.03.2002 have been issued under Rule 11 of Cenvat Credit Rules.
Para 2 of the above Notification indicates the quantum of deemed Credit which can be taken by the manufacturers. While availing the credit, it is not necessary to produce any documents evidencing payment of duty on the inputs. That is why this credit is called Deemed Credit. The Cenvat Credit is usually utilized in the payment of excise duty on clearance of final products. The Deemed Credit is also meant for utilization towards payment of duty of excise leviable on the final products. Both the notifications indicate in a table, the inputs and the final products. If any manufacturer satisfies the conditions of the above Notifications, they would be entitled for availing Deemed Credit.
13.2 We have already stated that the Deemed Credit is to be used towards payment of duty on the clearance of final products. In the present case, an amount of Rs. 65 lakhs has already been utilized on payment of duty on the final products cleared for home consumption. As per para 2 of the Notification, Deemed Credit can be taken or the credit is allowed at the time of clearance of the final products. This credit is utilized for payment of duty.
13.3. Revenue contends that when the final products are cleared to another EOU, as in the present case, no credit can be taken. On a careful reading of the notification, we do not come to such a conclusion. For clarity, we reproduce para 2 of the Notification 6/2002.
2. The Central Government further declares that a duty of excise of Rs. 18 per kg., shall be deemed to have been paid under the Central Excise Act, 1944 (hereinafter referred to as declared duty), on the declared inputs, when purchased by a manufacturer of the final products, and credit of the declared duty so deemed to have been paid shall be allowed to the manufacturer of the final products, without production of documents evidencing payment of duty on the said inputs, at the time of clearance of the said final products.
When the final products are cleared, the respondents are entitled for the Deemed Credit. What is a clearance in Central Excise parlance? The clearance can be for home consumption or export. In the former case, duty is paid on the final products and that payment of duty can be made by availing the Deemed Cenvat credit. The clearance can be either by direct export by the respondent or to other EOUs/Merchant Exporters. The other EOUs can use these final products in the manufacture of goods to be exported or they can directly export the same. The Merchant Exporters may just purchase the final products from the respondent and export them. The respondents, when they export the goods directly, can either pay duty and export or export under bond. The Revenue's contention is only when the respondents export the final products under bond, they will be entitled for Deemed Credit. In other words, according to the Revenue, clearance of final products by the respondent to another 100% EOU would pot come under the purview of 'export under bond', the expression utilized in proviso to para 3 of the Notification. When the credit accumulated by the respondent cannot be utilized, there is a provision for getting refund of the same. When the final product is exported under bond, no Central Excise duty needs to be paid. However, the respondent can avail Deemed Credit. That is how the deemed credit accumulates without being utilized. Even when the respondent clears the final product to another EOU/Merchant Exporter, there is no need to pay Central Excise duty on such clearance. According to Revenue, in that situation, no Deemed Credit can be availed. This is not a correct interpretation of law and the said notifications. If that were the case, even in para 2 of the Notification, the expression 'at the time of clearance of the said final products' would have been amplified to mean that the said clearance is only for clearance of home consumption and export under bond. Moreover, the proviso to para 3 of the Notification says that the credit in respect of the final products shall be allowed to be utilized towards payment of duty of excise for home consumption or for export on payment of payment of duty and where for any reason, such adjustment is not possible, by refund to the manufacturer. We shall also reproduce para 3 for clear understanding.
3. The credit of declared duty allowed in respect of the declared inputs shall be utilized only towards payment of duty of excise leviable under the said Central Excise Act, on the said final products:
Provided that the credit of declared duty in respect of the declared inputs used in the final products cleared for export under bond shall be allowed to be utilized towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government in the Official Gazette:
Provided further that no such refund of declared duty shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties (Drawback) Rules, 1971 or claims rebate of duty under Rule 18 of the Central Excise (No. 2) Rules, 2001, in respect of such duty.
The expression 'where for any reason such adjustment is not possible' requires serious consideration. In the present case, the respondents have not directly exported the final products. They had cleared the final products to EOUs/Merchant Exporters. In view of this reason, it would not be possible for them to adjust the credit accumulated. In that case also, the refund is possible. In other words, the entitlement to Deemed Credit is governed by para 2 of the Notification which does not restrict the same to final products cleared directly by the respondent under bond. The interpretation of the Commissioner (Appeals) is correct.
13.4 We would like to observe that even in Rule 5 of the Cenvat Credit Rules, there is a provision for refund of Cenvat Credit even in cases where the inputs are used in intermediate products cleared for export and the accumulated credit could not be adjusted for payment of Central Excise duty. When this is the general rule, there is no justification for denial of the refund claim when the final products were cleared to other EOUs.
13.5 As regards the question of time bar, we do not find this question in the Show Cause Notice. Moreover, the Tribunal, in the case of CCE & C, Ahmedabad-I v. Anjani Synthetics Ltd. , has held that refund claim in respect of Deemed Credit is not deniable on the ground of limitation as explanation 'B' to Section 11B of Central Excise Act, 1944 does not specify anything about refund claim arising under deemed credit. In these circumstances, we do hot find any merit in the Revenue's appeal and the same is dismissed.
13.6 In summing up, we hold that the respondent is entitled for Deemed Credit in respect of the final products which are cleared to EOUs/Merchant Exporters and the deemed credit is not restricted to the products directly exported by them under bond as contended by the respondents. Thus, the Revenue appeal is dismissed.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)