Retrospective exemption withdrawal cannot defeat export rebate when later rebate restriction applies only prospectively.

Retrospective withdrawal of the supplier's area-based exemption for cigarettes meant the exported goods were to be treated as duty-paid for rebate purposes under Rule 12(1)(a) read with Notification No. 41/94-CE (NT). The later restriction on rebate introduced by Notification No. 37/2007-CE (NT) operated prospectively and could not govern exports made before that date. On that basis, denial of rebate on the ground that no duty had been paid was unsustainable, and the rebate claim was to be granted with interest.

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Issues: Whether the petitioner was entitled to rebate/refund on export of cigarettes where the supplying manufacturer had initially availed area-based exemption later withdrawn retrospectively, and whether the rejection of rebate could be sustained in view of the subsequent legal position and the prospectivity of the later amendment.

Analysis: Section 154 of the Finance Act, 2003 retrospectively withdrew the benefit under Notifications Nos. 32/99-CE and 33/99-CE in so far as cigarettes were concerned, and provided for recovery of amounts earlier refunded. On that basis, the cigarettes purchased from the manufacturer had to be treated as goods on which duty had been paid for purposes of rebate under Rule 12(1)(a) of the Central Excise Rules, 1944 read with Notification No. 41/94-CE (NT) dated 12th September 1994. Independently, the later amendment restricting rebate was introduced prospectively by Notification No. 37/2007-CE (NT) dated 17th September 2007, and could not govern exports already made prior to that date.

Conclusion: The rejection of the rebate claim was unsustainable and the petitioner was entitled to the refund with interest.

Final Conclusion: The impugned orders were set aside and the rebate claim was directed to be granted in accordance with law.

Ratio Decidendi: Where an exemption enjoyed by the supplier is retrospectively withdrawn and the later restriction on rebate operates only prospectively, rebate on exported goods cannot be denied on the footing that no duty was paid.

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