2010 (7) TMI 324 - AT - Central Excise

Supplies to SEZ under Letter of Undertaking not treated as export under Rule 5; refund of Cenvat credit denied

CESTAT, MUMBAI - AT allowed the appeals and set aside the impugned order, holding the appellant entitled to deny refund of accumulated Cenvat credit. ... Scope and ambit of definition of 'export' - denial for refund of Cenvat credit - non fulfilment of the conditions for availing the benefit of rule 5 - inputs used in the finished goods - manufacture of excisable goods namely 'Pre-fabricated Steel Buildings' - whether the clearance of the finished goods under Letter of Undertaking to the SEZ units amounted to 'export' by the respondent for the purposes of rule 5. - HELD THAT:- For the benefit under rule 5, one has to satisfy mainly two conditions viz., (i) the Cenvated inputs should have been used in or in relation to the manufacture of the finished goods supplied to SEZ unit by way of export under Bond/Letter of Undertaking and (ii) the Cenvat Credit taken on the inputs was practically not capable of being utilized for payment of duty on any final product. The finished goods, in this case, were admittedly supplied to SEZ units under Letter of Undertaking. In the absence of a definition of 'export' under the Central Excise Act, the Central Excise Rules or the Cenvat Credit Rules, 2004, we hold that, for purposes of the Cenvat Credit Rules, 2004, one should look for its definition given under the Customs Act. The fictionalized definition of 'export' under section 2(m)(ii) of the SEZ Act cannot be looked for as it purports only to make the SEZ unit an exporter. We take this view because, as we have already indicated, anybody other than SEZ unit cannot be allowed to claim any benefit under the SEZ Act/Rules. Viewed from this angle, the respondent cannot be held to be entitled to refund of accumulated Cenvat Credit on the inputs used in or in relation to the manufacture of the 'pre-fabricated buildings' supplied by them to the SEZ units. The Hon'ble High Court is, in our view, working in favour of the revenue in the present case, wherein, unlike in the case of Essar Steel Ltd. [2009 (11) TMI 141 - GUJARAT HIGH COURT], the revenue has chosen to exclude the provisions of the SEZ Act/Rules from the purview of the Central Excise provision viz., rule 5 of the Cenvat Credit Rules, 2004. Thus, the view which was taken against the revenue in Essar Steel Ltd.'s case (supra) works in their favour in the instant case. In this case, we also find that certain factual findings recorded by the lower appellate authority do not stand the test of evidence. It was held that it was not in dispute that the respondent had fulfilled all the legal requirements of rule 5 read with Notification No. 05/06-CE (NT). This finding would amount to holding that the respondent established that they were not in a position to utilize the Cenvat Credit in question. But we have not found any material in the impugned order to indicate that the respondent could so establish. Be that as it may, the first and foremost point recorded by the learned Commissioner (Appeals), which is to the effect that the clearance of goods by the respondent to the SEZ Unit amounted to 'export' for the purpose of rule 5, has been negatived by us and, therefore, his order cannot be sustained in law. In the result, the impugned order is set aside and all these appeals are allowed. Issues Involved:1. Definition and applicability of 'export' under Rule 5 of the Cenvat Credit Rules, 2004.2. Eligibility for refund of unutilized Cenvat Credit for supplies made to SEZ units.3. Interpretation and relevance of SEZ Act and Rules in relation to Cenvat Credit Rules.Detailed Analysis:1. Definition and Applicability of 'Export' under Rule 5 of the Cenvat Credit Rules, 2004:The core issue revolves around whether the term 'export' in Rule 5 of the Cenvat Credit Rules, 2004, includes supplies made to SEZ units. The respondent argued that their supplies to SEZ units should be considered 'exports' based on the SEZ Act's definition. The SEZ Act, under Section 2(m)(ii), defines 'export' to include supplying goods from the Domestic Tariff Area (DTA) to an SEZ unit. The Commissioner (Appeals) supported this view, relying on the SEZ Act and related provisions, which deem such supplies as exports.However, the department contended that 'export' for Rule 5 purposes should align with the Central Excise Act and the Customs Act, where 'export' means taking goods out of India. The Tribunal sided with the department, emphasizing that the SEZ Act's deeming provisions are intended to benefit SEZ units, not DTA suppliers. The Tribunal concluded that the term 'export' in Rule 5 should be interpreted as 'physical export' out of India, as per the Customs Act's definition.2. Eligibility for Refund of Unutilized Cenvat Credit for Supplies Made to SEZ Units:The respondent claimed refunds under Rule 5 of the Cenvat Credit Rules, 2004, for inputs used in manufacturing goods supplied to SEZ units. The original authority rejected these claims, arguing that the goods supplied to SEZ units were capital goods, not inputs, and that such supplies did not constitute physical exports. The Commissioner (Appeals) overturned this decision, asserting that supplies to SEZ units qualify as exports under the SEZ Act, thus entitling the respondent to refunds.The Tribunal, however, disagreed, stating that Rule 5's benefits are not applicable to deemed exports. It emphasized that the SEZ Act's deeming provisions do not extend to granting refunds of unutilized Cenvat Credit to DTA suppliers. The Tribunal highlighted that the SEZ Act and Rules are designed to benefit SEZ units, not DTA suppliers, and thus, the respondent's refund claims were not justified.3. Interpretation and Relevance of SEZ Act and Rules in Relation to Cenvat Credit Rules:The Tribunal examined the SEZ Act and Rules, noting that these provisions are meant to benefit SEZ units. The SEZ Act's definition of 'export' creates a legal fiction for SEZ units, not for DTA suppliers. The Tribunal emphasized that deeming provisions should not be extended beyond their statutory purpose. It referenced the Supreme Court's judgments in Clariant International Ltd. and Swarn Rekha Cokes & Coals (P.) Ltd., which support the view that legal fictions should be limited to their intended scope.The Tribunal also considered the High Court's decision in Essar Steel Ltd., which held that for the levy of export duty, goods must be physically exported out of the country. Applying this rationale, the Tribunal concluded that the SEZ Act's deeming provisions do not apply to Rule 5 of the Cenvat Credit Rules, 2004. It reiterated that the term 'export' in Rule 5 should be interpreted in line with the Customs Act, meaning physical export out of India.Conclusion:The Tribunal set aside the Commissioner (Appeals)'s order, ruling that the respondent's supplies to SEZ units do not qualify as exports under Rule 5 of the Cenvat Credit Rules, 2004. Consequently, the respondent is not entitled to refunds of unutilized Cenvat Credit for these supplies. The Tribunal's decision underscores that the SEZ Act's deeming provisions are intended solely for the benefit of SEZ units and do not extend to granting benefits to DTA suppliers under the Cenvat Credit Rules.