Can a 100 % EOU export goods on payment of duty and claim rebate?
WE received this query from an enlightened assessee.
Query :
Whether a 100% EOU can export the goods on payment of Excise duty and claim rebate under Rule 18 of Central Excise Rules, 2002.
Notification No. dated 31.03.2003 exempts excise duty on goods manufactured by 100%EOU . Further, Section 5A (1A) of Central Excise Act, 1944 when there is any exemption granted, manufacturer should not pay Excise duty. Thus, 100% EOU is bound by Notification No.24 /2003 read with Section 5A (1A) and cannot pay Excise duty on exports.
Our Response:
It may be noted that Section 5A (1A) of Central Excise Act, 1944 stipulates that where an exemption under sub-section (1) thereof has been granted absolutely in respect of any excisable goods from the whole of the duty of excise leviable thereon, the manufacturer of such excisable goods shall not pay the duty of excise on such goods. The operative words of this sub-section are 'exemption granted absolutely'.
While Notification No. exempts all excisable goods manufactured or produced in an export oriented unit from levy of excise duties, the proviso says that the exemption shall not apply if such goods are brought to any other place in India.
Since the provisions of Section 5A (1A) speaks of an absolute exemption and the binding nature of such an absolute exemption on manufacturers of excisable goods, Notification No. cannot be regarded as an exemption notification granting absolute exemption to EOUs from levy of excise duties because the proviso thereof makes this exemption conditional i.e. this exemption is not applicable to EOUs if they clear excisable goods to any other place in India and such clearances would be chargeable to excise duties as per proviso to Section 3(1) of Central Excise Act read with Notification No. 23/2003-CE as amended.
Absolute exemption means an exemption without any conditions, whether preceding or subsequent, to be followed by those who avail such exemption. In view of this, Notification No. may not fall under the category of an absolute exemption as envisaged in Section 5A (1A) of Central Excise Act, 1944.
In view of the above, a 100% EOU may export goods on payment of duty and claim rebate under Rule 18 of Central Excise Rules, 2002.
However, excise officials may not accept the above interpretation of the nature and characteristic of Notification No. and disallow rebate claims. Since the policy of the Government is to allow export of goods and services unhindered and not the incidental taxes thereon, there is a possibility of the above views prevailing in higher judicial forums.
Alternatively, if there is excess CENVAT credit lying unutilized in the books, the export oriented unit is not precluded from claiming refund under Rule 5 of CENVAT Credit Rules, 2004 read with Notification No. 5/2006- CE( NT) as amended. This is an easier route to get refund of unutilized credit lying in books and devoid of any legal complications for an export oriented unit.
Therefore, it is advisable to follow the refund route under Rule 5 of CENVAT Credit Rules, 2004 instead of inviting unwarranted litigation by adopting the rebate route under Rule 18 of Central Excise Rules, 2002.