C & AG Reports Irregularity in simultaneous claims of Rebate and Drawback – A Classic case of misunderstanding of Drawback and CENVAT schemes
C & AG in its Audit Report for 2009-10 reported a case of simultaneous availment of drawback and rebate of duty paid on finished goods cleared for export and observed that such simultaneous claims tantamount to double benefit for the assessee.
M/s Indorama Synthetics Ltd in Nagpur Commissionerate manufactured polyester filament yarn (partially oriented yarn) and polyester staple fibre and exported these goods on payment of duty through CENVAT credit, under claim of rebate of duties so paid.
The assessee availed CENVAT credit of excise duties paid on inputs used in the manufacture of exported finished goods. However, at the time of clearance of such finished goods for export under claim of rebate of duties, the assessee reversed the CENVAT credit availed on inputs and claimed duty drawback of Rs. 15.70 crore at full rate (of 16 per cent of FOB value i.e. value determined for shipment of goods). The assessee was also granted rebate of Rs. 5.09 crore in cash in lieu of duty paid through CENVAT credit on the said exported goods .
C & AG states that through this modus operandi, the assessee obtained double benefit of liquidation of CENVAT credit in respect of inputs used in manufacture of exported goods, once as duty drawback at full rate in cash and again as rebate of duty on the goods exported by way of refund in cash.
In reply, the department stated that there was no double benefit as such benefit arose only when the same tax was refunded twice. The department further stated that if the Government's intention was to provide any one of the three rebates only, it would have provided exclusion clause in each of these schemes against the remaining two, which was not the case.
C & AG said that the department's reply was not tenable in view of the judgement of the Bombay High Court in the case of M/s Indorama Textiles Ltd vs. Commissioner of Central Excise, Nagpur () which held that in case of export of goods, the assessee was entitled either to rebate of duties paid on inputs or to rebate of duties paid on finished goods.
The Indorama case in the High Court was a unique situation where the assessee simultaneously claimed rebate of duty paid on inputs used in the manufacture of finished goods exported as well as duty paid on such finished goods cleared for export, under Rule 18 of Central Excise Rules, 2002. The High Court observed that the intention of the Legislature was not to grant to simultaneous benefits under Rule 18 as claimed by the assessee, i.e. both input stage rebate and rebate of duty paid on finished goods.
If duty paid on inputs used in manufacture of goods cleared for export could be availed as CENVAT credit and at the same time the duty paid on such goods cleared for export (even utilizing CENVAT A/c) could be claimed as rebate under Rule 18, what is the harm if both the rebates i.e. input stage rebate and rebate of duty paid on finished goods cleared for export are claimed simultaneously so long as the duty paid on inputs is not availed as CENVAT credit and such CENVAT credit is not utilized to pay duty on finished goods exported under claim for rebate.
Likewise, claim of drawback and claim of rebate of duty paid on finished goods work in altogether different spheres. While drawback is equivalent to element of duty paid on inputs used in the manufacture of export goods (even excluding the excise element in instances where such excise duty element could be availed as CENVAT credit), rebate claim of duty paid on finished goods does not overlap with this drawback element at all, as such rebate claim is only to the extent of duty paid by the exporter on the finished goods cleared for export.
It will amount to double benefit as claimed by C & AG only if there is an overlap of the duty elements in drawback, rebate of input stage duties, CENVAT credit availment on inputs/input services and rebate of duty paid on finished goods (this element can be bracketed here only if the duty is paid on finished goods through CENVAT A/c). So long as there is no overlap of duty benefits, a case of double benefit cannot be made out.
In the instant case the assessee appears to have availed CENVAT credit on inputs and reversed the entire amount before claiming the same as drawback and was also granted a rebate of duty paid on export goods through CENVAT A/c.