Exporters at Receiving End from Smart Officers in Field – CBEC yet to Catch Up with Suitable Clarifications
In DDT 1146 03.07.2009 we reported the issue of overlapping duty rates due to multiple exemption notifications and exporters getting short changed due to rejection of refund claims because certain ingenious officers in the field were invoking the provisions of Section 5A (1A) of Central Excise Act, 1944 to enforce availment of exemption notification which provides for absolute exemption.
The catch is, if the exporters are forced to avail absolute exemption in spite of their product being dutiable by virtue of another notification, they in turn become ineligible for availment of CENVAT credit of duty/tax paid on inputs and input services used for the exempted goods according to the officers in the field and are therefore subjected to the provisions of Rule 6(1) read with 6(3)(ii) of the CENVAT Credit Rules, 2004 (CCR).
In fact in DDT 1158 21.07.2009 while reporting another similar incident, we commented on this issue as follows:
“.….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.”
It is another matter that the High Court or the CESTAT was also not impressed with this idea of the department subjecting export of exempted goods to Rule 6(1) read with Rule 6(3) of CCR [See Repro India Ltd vs. Union of India & Anr and Neo Foods Pvt Ltd vs. CC (Appeals) 2009-TIOL-976-CESTAT-BANG ].
In spite of such clear mandate from the High Court / CESTAT, it appears that these officers while issuing show cause notices to deny refunds claimed under Rule 5 of CCR , are also resorting to issue of show cause notices for recovering the amount payable in terms of Rule 6(3)(ii) of CCR for having availed CENVAT credit on such inputs/input services used in the manufacture of exempted goods cleared for export. This approach goes against the grain of the CENVAT scheme and the judicial pronouncements on the subject.
Since the indifferent and disrespectful attitude of the officers in the field formations for judgements of Courts/CESTAT is widely documented, while reporting these unfortunate incidents in these columns, we requested the CBEC to issue suitable clarifications for the benefit of the exporters. Unfortunately, the delay on the part of CBEC is only compounding the woes of exporters.
"A budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another."
– President Barack Obama