Export of menthol crystals and peppermint oil from common input-Rule 6 credit curbs held inapplicable; rebate allowed u/r 18.

Where a manufacturer exported exempt menthol crystals under bond and exported dutiable peppermint oil on payment of duty by debiting Cenvat credit taken on duty-paid menthol, the dominant issue was whether rebate under Rule 18 of the Central Excise Rules, 2002 could be denied by invoking Rule 6(1)-(4) of the Cenvat Credit Rules, 2004. The HC held that exports are governed by Rule 5 and, since both final products manufactured from the common input were exported, Rule 6 restrictions on credit for exempt goods were inapplicable; credit on the common input could be utilized to pay duty on the exported peppermint oil. Consequently, duty paid (even through Cenvat debit) was rebatable under Rule 18, and the rebate claim was allowed.

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Issues: Whether, where inputs on which CENVAT credit was taken are used in the manufacture of both exempted menthol crystals (exported under bond) and dutiable peppermint oil (exported on payment of duty), the assessee is entitled to utilize the CENVAT credit availed on inputs used in manufacture of exempted menthol crystals to pay duty on exported peppermint oil and claim rebate of that duty.

Analysis: Rule 6(1) of the CENVAT Credit Rules, 2004 provides that CENVAT credit is not allowable for inputs used in manufacture of exempted goods; Rule 6(2) permits credit for inputs used in manufacture of both dutiable and exempted goods subject to maintenance of separate accounts or payment under Rule 6(3). Rule 6(6)(v) carves out an exception where exempted goods are cleared for export under bond, rendering Rule 6(1) to 6(4) inapplicable in that specified circumstance. Rule 5 of the 2004 Rules allows utilization of CENVAT credit on inputs used in exempted final products cleared for export under bond towards payment of duty on any final product, with refund where such adjustment is not possible. Rule 18 of the Central Excise Rules, 2002 permits rebate of duty paid on exported goods. Applying these provisions to the admitted facts that menthol crystals (exempted) were exported under bond and peppermint oil (dutiable) was exported on payment of duty, the exception in Rule 6(6)(v) applies and Rule 5 authorizes utilization of the CENVAT credit on menthol for payment of duty on peppermint oil; consequently rebate under Rule 18 is available for the duty so paid on exported peppermint oil.

Conclusion: The assessee is entitled to utilize the CENVAT credit availed on menthol (used in manufacture of exempted menthol crystals exported under bond) for payment of excise duty on exported peppermint oil and to claim rebate of the duty paid on that exported peppermint oil; the petition filed by the Commissioner is dismissed and the deposited rebate amount shall be paid to the assessee.

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