M/S. Nav Bharat Impex vs Cce-Delhi-I

[Arising out of order-in-appeal no. 12-CE/DLH/2015 dated 12/02/2015 passed by Commissioner of Central Excise (Appeals) New Delhi]

1. Whether Press Reporter may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

M/s. Nav Bharat Impex Appellant

Vs.

CCE-Delhi-I Respondent

Appearance: Shri Balbir Singh, Advocate for the appellant

Shri R.K. Grover, DR for the respondent.

Coram: Honble Shri Ashok Jindal, Member (Judicial)

Honble Shri B.Ravichandran, Member (Technical)

Final Order NO. 52445/2015

Per: Ashok Jindal

1. The appellants are challenging the impugned order for denying their claim of refund under Rule 5 of CENVAT Credit Rules, 2004 for export of Menthol Crystals claim to be exported under bond in terms of Rule 19 of Central Excise Rules, 2002. The facts of the case are that the appellants are manufacturer of Menthol Crystal (BP/USP grade), Menthol Powder and Peppermint Oil classifiable under Chapter heading/sub-heading nos. 29061100 and 33012590 and after eight digit code tariff was introduced and classified them under proper heading, appellant was availing CENVAT Credit facility as provided under CENVAT Credit Rules, 2004 in respect of main input. i.e., De-Mentholized Oil and Menthol Flakes. By notification no. 4/08 Central Excise dated 1/3/2008, the Menthol Crystal (BP/USP grade) covered under Chapter heading 30039021 were fully exempted from duty.Therefore, these Menthol Crystals manufactured by appellants became exempted goods w.e.f. 1/3/2008. The manufacturing process of final product indicates that the Menthol Crystal is the main final product manufactured out of the raw material.

Therefore, the case of Revenue is that the CENVAT Credit in balance as on 1/3/2008 is required to be reversed by the appellant as per provisions of Rule 11 of CENVAT Credit Rules, 2004. In these set of facts, the show cause notice was issued to the appellant that as per the notification no. 4/08 dated 1/3/2008, their final product has become exempt. Therefore, CENVAT Credit lying in their CENVAT Credit account should lapse and should not be allowed to be utilized for payment of duty on any other final product whether cleared for home consumption or for export. Therefore, the appellant cannot avail benefit of CENVAT Credit either for primary final product mainly Menthol Crystals (BP/USP grade) or for any other bye-product peppermint oil merging during manufacturing process of Menthol Crystal (BP/USP grade) in consonance with Rule 6(1) and 3 of the CENVAT Credit Rules, 2004. In these set of facts, the show cause notice was issued to the appellant to deny rebate/refund schemes filed by the appellants. The Adjudicating Authority denied rebate/refund scheme. Aggrieved from the said order appellant filed the appeal before the Ld.

Commissioner (appeal) who allowed the rebate schemes but rejected the refund claim filed by the appellant under Rule 5 of the CENVAT Credit Rules for export of Menthol Crystal claimed to be exported under bond in terms of Rule 19 of the Central Excise Rules, 2002. Aggrieved from the said order, appellant is before us.

2. Ld. Counsel for the appellant submits that the sole ground in the impugned order is that the appellant is not eligible for CENVAT Credit and consequently they are not entitled to claim refund under Rule 5 of the CENVAT Credit Rules, 2004 as appellant has failed to comply with the conditions of Rule 6 (3) of CENVAT Credit Rules, 2004 by not maintaining accounts, reversing CENVAT Credit or making payment of 8% /10% in respect of menthol crystal exported. It was also the case of the Revenue that Rule 6 (6) (5) of the CENVAT Credit Rules is not applicable to the goods which have been absolutely exempted from duty by notification issued under Section 5A of the Central Excise Act, 1944. He further submits that on the issue of the eligible to CENVAT Credit in their own case for the said period, this Tribunal in the case of Nav Bharat Impex Vs. Commissioner of Central Excise, Delhi reported in 2012 (285) ELT 582 (Tri-Del) has held that the appellant is entitled to avail CENVAT Credit and reversal of credit is not warranted. He, further submits that for the exported goods, appellant is not required to comply with the provision of Rule 6 (3) as Rule 6 (6) of the said Rule specifically excludes the applicability of Rule 6 (3) indicates that the goods are exported under bond. To support this contention, he relied on the decision of the Honble High Court of Bombay in the case of Repro India Ltd. Vs. Union of India reported in 2009 (235) 614 Bom.. Therefore, he submits that impugned order be set aside and the appeal may be allowed with consequential relief.

3. On the other hand, ld. AR reiterated the findings of the impugned order.

4. Heard the parties and considered the submissions.

5. The issue of entitlement to avail CENVAT Credit has been settled by this Tribunal in appellants own case wherein this Tribunal has observed as under:

We find that the adjudicating authority in para 18, had categorically come to the conclusion that the some of the products like peppermint oil, etc. were excisable and dutiable. The only question that has been incorrectly construed by adjudicating authority is that according to him, the Menthol Crystals (BP/USP Grade) is the main product and other products were not produced independently, through a separate process of manufacture and were only unintended by products obtained from residual material left after the manufacture of exempted goods. In our considered view, this is an incorrect proposition in law. We find that the provisions of Rule 6 (2) specifically says that whenever a manufacturer of goods who manufactures the final product which are chargeable to duty as well as exempted, should maintain separate accounts for receipt, consumption, and inventory of input. In provisions of Rule 6 (3), it is clearly indicated that if manufacturer is not able to maintain such account, he can clear the exempted goods by paying amount equivalent to 8% or 10% of the value of the goods. The entire provisions of Rule 6, if read together, would indicate that there has to be an exempted final product and there has to be dutiable final product. In our view, provisions of Rule 6 (2) and Rule 6 (3) read together will cover the case of the assessee inasmuch as the appellant has claimed that they have reversed an amount as indicated in the provisions of Rule 6 (3) of CENVAT Credit Rules, 2004.

As regards Revenues claim that provisions of Rule 6 (1) of CENVAT Credit Rules, 2004 will apply, we find that the said provision very clearly talk about the manufacturer of exempted goods and there is no mention or indication that such exempted goods should be only considered as main product and the byproduct if any, cannot be a final product. The provisions of Rule 6 of CENVAT Credit Rules, 2004 clearly indicate that there has to be, manufacturing of products which are dutiable and exempted for application of this Rule 6 of CENVAT Credit Rules, 2004, and there is no dispute in this case that products of the appellant were covered under this Rule.

6. Now the short issue involved is that in the case of the export under bond whether the appellant is entitled to claim refund of duty in terms of Rule 19 of the Central Excise Rules, 2002 or not. Rule 6 (6) (v) of the CENVAT Credit Rules deals with the situation which are reproduced as under:

We may also consider the provisions of Rule 6 of the CENVAT Credit Rules, 2004. The relevant portion of Rule 6 (6) (v) reads as under:-

The provisions of sub-rules (1), (2), (3) and (4) shall not (6) be applicable in case the excisable goods removed without payment of duty are either:-

(i) 

(ii) ..

(iii) ..

(iv) ..

Cleared for export under bond in terms of provisions of the (v) Central Excise Rules, 2002.

The petitioners had manufactured both dutiable and exempted final product (packaged software and printed books respectively). The petitioner has taken credit on input used in the manufacture of dutiable as well as exempted final products. If the exempted products are exported outside India, the provisions of Rule 6 (6) (v) of the CENVAT Credit Rules are applicable. Therefore, the bar provided under Rule 6 (1) and the liability created under Rule 6 (3) (b) of the CENVAT Credit Rules, 2004 are not attracted. By denying to the petitioner from exporting the printed books under bond what the respondents want to do is in fact to levy 10% on the sale price of the printed books in terms of Rule 6 (3) (b) of the CENVAT Credit Rules, 2004. In our opinion this is wholly impermissible.

The provisions as now contained in Rule 6 of the Credit Rules, 2004 were contained in Rules 57C and 57CC of ht Central Excise Rules, 1944 as they stood prior to 1st April, 2000. From 1st April, 2000 till 30th June, 2001 similar provisions were contained in Rule 57AD of the Central Excise Rules, 1944. In the context of these Rules circular dated 8th November, 2001 of the Ministry of Finance was issued. It dealt with the question, whether 8% has to be paid on the sale price of exempted goods. Under Rule 6 (3) (v) of CENVAT Credit Rules, 2004 to 8% has been increased to 10%. The relevant portion of the Circular dated 8th November, 2001 reads as under:

Further, it is now clearly and specifically mentioned in Rule 57 AD (4) that the provisions relating to non-availability of Modvat credit and reversal @ 8% is not applicable in case the exempted goods are cleared for export under bond in terms of the provisions of Rule 13.

In the new Rule 57AD, it has been explicitly provide what was implicity in erstwhile rules 57C and 57CC. Further, the present rule 57AD (4) clearly goes on to show that the exempted goods are eligible to be exported under bond. To interpret otherwise will render the new rule 57AD (4) redundant.

In view of the foregoing in this case the provisions of sub-rules 57 C (1) are satisfied as stipulated under Rule 57C (2) as well as Rule 57CC (6)1 and there was no need to comply with the provisions of Rule 57 CC 1. Therefore, it is clear that an amount of 8% of the price of the goods exported is not required to be paid irrespective of whether the exported goods are exempted or otherwise.

It would thus appear that the direction of the respondent no. 2 to the petitioners to pay 10% even though printed books were exported as not legally sustainable. It is only in the event the petitioners does not export the printed goods and do not maintain the account as contemplated by rule 6 (2) the petitioner would be required to pay 10% on the sale price of the printed books not so exported.

Even though Rule 6(1) of the CENVAT Credit Rules, 2004 provides that no CENVAT Credit will be available in respect of the inputs used in the manufacture of exempted products, Rule 6 (6) (v) of the CENVAT Credit Rules creates an exemption inter alia in respect of the excisable goods removed without payment of duty for export under bond in terms of Central Excise Rules, 2002. Considering the language of Rule 6 (6) (v) of the CENVAT Credit Rules, 2004, the petitioners are entitled to avail CENVAT CREDIT in respect of the inputs used in the manufacture of the final products being exported irrespective of the fact that the final products are otherwise exempt.

7. As per the said provision for applicability of Rule 6 (6) (v), the provision of sub-Rule 1, 2 3 and 4 are not applicable where excisable goods are removed without payment of duty in case export is made under bond in terms of the provisions of Chapter 5 of the Central Excise Rules, 2002. As the provision of Rule 6 (3) are not applicable to the facts of this case as the appellant has exported the goods under bond following as per the provision of Rule 19 of the Central Excise Rules, 2002. Therefore, we relied on the decision of Repro India Ltd. reported in 2009 (235) ELT 614 Bombay to say that refund claim cannot be rejected wherein Honble High Court to Bombay has observed as under:

The CENVAT Credit is allowed n (sic) the duty paid on inputs to mitigate the effect of double taxation of levying duty on inputs as also on the final product. If, however, the exempted final product is exported it calls for a special relaxation/dispensation to make the goods of the country internationally competitive. As an illustration suppose a final product like tractor is otherwise exempted from excise duty even for domestic consumption and such tractors are exported. The various inputs like engines, etc. used in the tractor may have suffered excise duty. The intention is not to export taxes but only to export the goods. If the inputs like engine going into the manufacture of export commodity namely tractors are subject to excise duty, the Indian manufacturer of tractors becomes internationally uncompetitive. This appears to be the object behind the Government enacting special scheme to ensure that the duty is not levied even on inputs going to the export products. Rule 6(6) (v) has been consciously and expressly enacted with the specific objective to ensure that duty is not levied even on inputs going to the export products.

This method of adjustment, both from the point of Government and the assessee is to allow the assessee to take CENVAT Credit on the inputs used in the export products and allow the assessee himself to adjust it for payment of duty on other products. If the adjustment is not possible, CENVAT Credit is refunded in cash. This appears to be the Scheme of Rule 5 of the CENVAT Credit Rules, 2004. With a view to achieve this object, the Central Government has specifically enacted Rule 6 (6) (v) of the CENVAT Credit Rules, 2004 to the effect that the bar created by Rule 6 (1) will not apply for goods exported. Considering the conscious and express provisions contained in Rule 6 (6) (v) for exported goods, to deny the permission to export under bond and / or to levy 10% on the value of the exported goods under Rule 6 (3) (b) on the footing that the printed books exempted and, therefore, attract Rule 6 (1) would be incorrect and completely nullify and frustrate Rule 6 (6) (v).

We may also consider the various clauses of Rule 6 (6) which would indicate that they relate to goods which are wholly exempt from duty. Rule 6 (6) (i) relates to supply to SEZ. These are wholly exempted from duty vide notification dated 19th October, 2001 and notification dated 22nd July, 2003. Rule 6 (6) (ii) relates to supply of goods to export Oriented Units. These are wholly exempt by Notification dated 31st March, 2003. Rule 6 (6) (iii) relates to goods supplied to a unit located in Electronics Hardware Technology Park or Software Technology Park. Such supplies are exempt from duty by notification dated 31st March, 2003. Rule 6 (6) (iv) relates to supplies to United Nations or an International organization for their official use. These are exempt by Notification No. 108/95. Rule 6 (6) (v) relates to export under bond. Rule 6 (6) (vi) relates to gold or silver arising during refining of copper. These are exempt from payment of duty by Notification No. 5/2006-C.E. dated 1st March, 2006. It would thus be clear that all the clauses of Rule 6 (6) are enacted only to deal with the situation when the final products are exempt from payment of duty. If a final product is not exempted from duty, Rule 6 (1) is not attracted at all and hence Rule 6 (6) is unnecessary. Rule 6 (6) is precisely needed only when the final products are exempt from payment of duty. In this context the Revenue itself has accepted that under the provisions of CENVAT Credit Rules, 2002 there was provisions for removal of exempted goods under bond but he same was not available with effect from 9th September, 2004 under CENVAT Credit Rules, 2004.

We may reproduce Rule 6(5) of the CENVAT Credit Rules, 2002 which reads as follows:

(5) The provisions of sub-rule (1), sub-rule (2), sub-rule (3), and sub-rule (4) shall not be applicable in case the exempted goods are either:-

(i) Cleared to a unit in a free trade zone; or

(ii) Cleared to a unit in a special economic zone: or

(iii) Cleared to a hundred per cent export oriented undertaking; or

(iv) Cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or

(v) 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 GSR 602 (E) dated the 28th August, 1995; or

(vi) Cleared for export under bond terms of the provisions of the Central Excise Rules, 2002.

We may reproduce Rule 6 (6) of the CENVAT Credit Rules, 2002, which read as under:

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 or 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 the items 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.

A perusal of the aforesaid Rules would clearly show that sub-rule (i) to (vi) are identical and the difference in Rule 6 (6) of the CENVAT Credit Rules, 2004 and Rule 6 (5) of the CENVAT Credit Rules, 2002 is not relevant for the purpose of the present case. Rule 6 (1), 6 (2), 6 (3), 6 (4) of the CENVAT Credit Rules under CENVAT Credit Rules, 2002 as well as under the CENVAT Credit Rules, 2004 remains the same. As noted earlier the object and purpose of Rule 6 (6) of CENVAT Credit Rules, 2004 is to promote the policy of the Government that the benefit of duty paid on input is available as credit in respect of certain exempted goods as well as the exempted goods exported under bond. The minor change in the wordings of Rule 6 (6), of the CENVAT Credit Rules, 2004 by using the term excisable goods instead of exempted goods is that the term exempted goods may not cover the dutiable goods which are exported under bond. Therefore, in order to widen and cover both dutiable and exempted goods exported under bond Rule 6 (6) of CENVAT Credit Rules, 2004 uses the expression excisable goods. As an illustration, if a car which is dutiable is exported under bond without payment of duty there may be doubt as to whether credit on the inputs will be available, since the car is cleared without payment of duty under Rule 6 (5) of CENVAT Credit Rules, 2002. It could be argued that it covers only the exempted goods exported and not dutiable goods exported. In order to cover such a situation also, Rule 6 (6) of CENVAT Credit Rules, 2004 used the expression excisable goods which is wider to include both dutiable as well as exempted goods.

In our opinion therefore, the petition will have to be allowed. The petitioners are entitled to remove the goods on furnishing the bond as set out in Annexure 16 in Form B-1 of the Central Excise Manual. Rule made absolute accordingly. There shall be no order as to costs.

7. In these terms, we allow the refund claim filed by the appellant under Rule 5 of the CENVAT Credit Rules, 2004 for the exports made by the appellant under bond in terms of the provision of Rule 19 of the Central Excise Rules, 2002. Therefore, impugned order is set aside qua rejection of refund claim and appeal is allowed for consequential relief, if any.

(Ashok Jindal)

Member (Judicial)

(B. Ravichandran)

Member (Technical)

Ritu

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