Plight of Textile Sector in getting Refund/Rebates – CBEC should provide prompt Clarification
In 03.07.2009, we highlighted the plight of manufacturer-exporters of textile goods falling under Chapter 63, who endured a lot of pain and suffering for getting rebate of duty paid on goods exported, from Central Excise authorities and failed miserably. This was due to an anomaly in duty rates by virtue of Notification 58/2008-CE which prescribed Nil duty whereas Notification 59/2008-CE which prescribed a duty of 4%.
A brief recap:
The assessee, who is leading textile export house, was keen to avail the benefit of Notification 59/2008-CE which would facilitate them in getting rebate of duty paid on export goods while allowing them to avail CENVAT benefit on inputs/input services. Departmental authorities rejected their plea on the ground that when finished goods are absolutely exempted by virtue of an exemption notification they are bound to avail that exemption and not pay duty in terms of another notification. When they approached us we suggested that there is a TRU clarification dated 29.02.2008 which addressed this problem in their favour.
Budget amendment:
Immediately thereafter, in the Budget 2009, Notification 11/2009-CE dated 07.07.2009 was issued amending Notification 29/2004-CE dated 09.07.2004 as amended, by virtue of which, goods attracting Nil duty hitherto shall attract 4%. So, to an extent the anomaly of dual effective duty rates for finished products of Chapter 63 was resolved.
Did this really solve the problem:
While the problems faced by the assessees are perennial, the solutions come only in a trickle. This seems to be the case with the above amendments as well. Yesterday, we received an email from a leading textile manufacturer and exporter citing our commentary in , followed by the Budget amendment immediately thereafter and came up with the following poser:
“Now with this budget, this problem is solved by amending the said notification (58/2008-CE) by Notification 11/2009-CE. But what about the intervening period i.e. from 07.12.2008 to 06.07.2009. CBEC should clarify”
A possible solution:
In this case, it appears the assessee was availing Nil duty benefit in terms of Notification 29/2004-CE as amended by Notification 58/2008-CE which is in contrast to the problem highlighted by us in .
In our view, if finished goods attracted Nil duty during the intervening period and if such exempted goods are exported, even then there is no bar for such exporters in availing the refund of unutilized input tax credits in terms of Rule 5 of CENVAT Credit Rules, 2004.
The phrase used in the opening sentence of this Rule is ‘any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking…’. So if a manufacturer-exporter is engaged in the manufacture of final products which are cleared for export under bond or LUT, then credit availed on inputs or input services can be utilized for payment of duty of excise on any final product cleared for home consumption or ‘for export on payment of duty’ or as service tax on output service. In case such utilization (or adjustment as indicated in the Rule) is not possible, such manufacturer-exporter shall be allowed refund of such unutilized credits.
Refund of unutilized credit is a substantive benefit provided by the CENVAT scheme for exporters and there are a plethora of judicial pronouncements which have held that substantive benefits accruing to an assessee cannot be denied on flimsy grounds. Further, this Rule when read with Rule 6(6) (v) ibid clearly allows availment of CENVAT credit and refund of unutilized credit.
This is also supported by judicial pronouncements as in the case of Repro India Ltd vs. Union of India & Anr where Mumbai High Court held that the phrase ‘excisable goods’ employed in Rule 6(6) ibid has a wider connotation and includes both dutiable and exempted goods.
Also, in Neo Foods Pvt Ltd vs. CC (Appeals) 2009-TIOL-976-CESTAT-BANG, CESTAT held that Rule 6(1) of CENVAT Credit Rules, 2004 is not a bar to avail CENVAT credit on inputs/input services utilized in export of exempted goods by 100% EOU. The CESTAT also exhorted that the principle of excise taxation envisages only export of goods/services but not taxes and therefore refund of unutilized credit by a 100% EOU is allowable in terms of Rule 5 ibid.
The principles enunciated by the Bombay High Court and the Bangalore Bench of CESTAT would certainly hold good for the issue on hand.
DDT hopes that the benign CBEC will come out with a suitable clarification for the benefit of trade and industry.