Suresh Kumar Nair
If there is “speed of light” in physics – in tax domain, we have “TIOL”. Apart from the in-house ‘DDT’ which champions the cause, celebrated columnists and famous duo of Jai Kumar and Natarajan have in the past set exacting standards in analysis on tax issues – quick, impromptu and crisp !!! This time around my friend, Santosh, has come out with a super quick take on the possible confusion created by Board’s Circulars dated 8.12.2006 and 03.04.3007 in his latest piece ‘Area-based exemption - Double benefits theory may put exports in double jeopardy ! Kudos to TIOL for attracting the genius !!!
Since I had stitched a few words on the subject matter in Region specific exemption and rebate of duty - Having the cake and eating it too!!, it is difficult to refrain from maintaining stoic silence after the developments on the issue.
First and foremost, let me reiterate that we have not two but three clarifications. This is important in the context of this issue. Prior to the clarifications dated 08.12.2006 and 03.04.2007, Board had given a decent burial to this issue with the clarification “ As there appears to be no legal bar, the Board desires the claim ( read rebate claim ) should be processed as per the existing provisions of law”. In fact, the Board had examined the issue as to having granted cash refund to the manufacturer in the specified areas, whether there would be a legal bar in allowing rebate of the duty paid by the manufacturer of the said goods to the eventual exporter. And the answer, as stated above was ‘ no legal bar’ !!!
Questions which come as a natural corollary to the above - What happened to this clarification? Why is there no mention or reference of the same in the further clarifications? Has it been over ruled? If so, why not say so explicitly? Last but not the least – what necessitated the need for further clarification from the Law Ministry on the issue? And now what do we have – not one but two further clarifications on the subject matter !!!
Coming back, clarification dated 08.12.2006 stated that the term 'duty paid' used in rule 18 does not include that portion of duty, which is subsequently refunded to the manufacturer. They have further opined that the amount so refunded to the manufacturer is to be treated as an exemption and rebate of the said amount cannot be paid. So, the Revenue officers were required to issue notices to such merchant exporters who have availed / claimed rebate of the duty paid on the export goods which was also refunded in cash to the manufacturer of the goods situated in the specified area enjoying the special dispensation. Note that even the adjudicating authorities were directed to follow the Board’s take on the subject matter.
Now, coming back to the article in the Special Column. Is the second clarification dated 03.04.2007 out of place or does it really confuse the field formations? I have views other than my learned friend though I thoroughly appreciate that the Board probably did not consider the issue of ‘input stage rebate’. My take is that the second clarification dated 03.04.2007 is just to prevent our over zealous field officers from stopping rebate of duty paid by manufacturers ( in other areas ) who have availed Cenvat credit of the duty paid by such area based manufacturers and exported goods manufactured out of such duty paid goods. I feel the Board has rightly clarified that “there is no bar on utilizing this credit for payment of duty on goods cleared for exports. The units located in other parts of the country manufacture the goods, and pay the applicable excise duty on export of goods, and therefore, they are eligible to claim rebate of said duties under rule 18 of the Central Excise Rules, 2002.” This should nip in the bud our magnificent pro revenue officers who go that extra mile to issue show cause notices at the drop of a hat and provide fodder for our ‘safer than safe’ adjudicating authorities who blindly order for a draft order confirming the duty demand. This circular, seen in this context, will be a great relief for one and all.
So, what is the status now – Merchant exporters will not get rebate of the duty paid by the manufacturers in the specified areas whereas manufacturers in other areas who have used the said goods as their inputs to manufacture their export goods will get rebate of duty paid on the goods exported by them. Fair enough!!! Looks okay, to this mortal.
Summing up, I do not think that the Board has permitted sanctioning rebate to merchant exporters in the above scenario. The Circular dated 08.12.2006 clearly denies the same. Rebate of input stage credit by the manufacturer in other areas does not appear to have been explicitly addressed by the Circular dated 03.04.2007 as pointed out in the article whereas the said Circular takes care of the case of rebate of duty to manufacturers in other areas who have used the said goods as their inputs to manufacture and clear their export goods.
And I think credit should be given to the Board for not discussing the term ‘double benefit’ angle at all in both the said Circulars – in case the same was attempted to be addressed or clarified, it would have turned into a disaster. As is apparent, there is no discussion on the contentious issues in the clarifications eventually leaving it to the Tribunals and the Courts to give relief to all such exporters hit by the sledge hammer of circular dated 08.12.2006.
Hopefully, we have heard the last on the subject matter – until, a breaking news column in TIOL analyses the first judgment settling the dispute arising out of Circular dated 08.12.2006 !!!