Reversal of Cenvat credit before utilisation preserves entitlement to higher drawback rate and defeats differential recovery

Reversal of proportionate Cenvat credit on common input services before utilisation was treated as non-availment of credit, so the exporter was not disentitled to the higher all-industry drawback rate. Drawback under Section 75 of the Customs Act, 1962 and Rule 3(1) of the Drawback Rules is designed to neutralise duty and tax incidence on exports, and the relevant notifications did not justify denial of the higher rate on these facts. The later express reference to input services was treated as clarificatory. Recovery of differential drawback was therefore not sustainable.

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Issues: Whether the exporter, having taken Cenvat credit on input services but reversed the proportionate credit before utilization, was disentitled to the higher all-industry rate of drawback and liable to recovery of the differential drawback.

Analysis: Drawback under Section 75 of the Customs Act, 1962 read with Rule 3(1) of the Customs, Central Excise and Service Tax Drawback Rules, 1995 is intended to neutralize duty and tax incidence on exported goods, and the admissible rate depends on whether the relevant Cenvat facility has been availed. The record showed that the applicant had availed only proportionate credit on common input services and that the disputed credit remained unutilized and was reversed when the objection arose. On the settled principle that reversal of credit before utilization is treated as non-availment of credit, the subsequent reversal neutralized the objection. The notifications prescribing drawback rates did not justify denial of the higher rate in these facts, and the later explicit reference to input services was treated as clarificatory.

Conclusion: The applicant remained entitled to the higher drawback rate, and the demand for recovery of differential drawback could not be sustained.

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