Rule 6(1)-6(4) unchanged; Rule 6(6) broadened to cover excisable/dutiable goods exported under bond; Cenvat credit allowed

Bombay HC allowed the petition, holding that Rule 6(1)-6(4) of the Cenvat Credit Rules (2002 and 2004) remain the same and the minor wording change in Rule 6(6) (using "excisable goods") simply broadens coverage to include dutiable goods exported under bond. The court found the policy permits Cenvat credit for inputs used in exempted goods and exports under bond, ordered that the petitioners may remove the goods on furnishing the bond in Form B-1 (Annexure 16), made the rule absolute, and declined costs.

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Issues Involved:

1. Utilization of Cenvat credit for inputs used in the manufacture of exempted goods.
2. Clearance of exempted goods under bond for export.
3. Applicability of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 for exempted goods exported.
4. Requirement of maintaining separate accounts for inputs used in dutiable and exempted goods.
5. Refund claims for Cenvat credit on inputs used in exempted goods.

Issue-wise Detailed Analysis:

1. Utilization of Cenvat credit for inputs used in the manufacture of exempted goods:

The petitioners claimed Cenvat credit for the duty paid on inputs used in manufacturing packaged software, stationery books, and printed books. They utilized this credit for paying duty on packaged software and stationery books and sought a refund in cash for the credit attributable to printed books exported. The court recognized that Rule 6(6)(v) of the Cenvat Credit Rules, 2004 allows Cenvat credit for inputs used in the manufacture of final products being exported, irrespective of the final products being exempt.

2. Clearance of exempted goods under bond for export:

The Assistant Commissioner initially allowed the clearance of dutiable and exempted goods under bond. However, later directives restricted the clearance of exempted goods (printed books) under bond, citing no provision under Rule 19 of the Central Excise Rules, 2002 for such clearance. The court referred to the Ministry of Finance's letter and past judgments to conclude that even exempted goods could be cleared for export under bond, aligning with Rule 19 and the relevant notifications.

3. Applicability of Rule 6(3)(b) of the Cenvat Credit Rules, 2004 for exempted goods exported:

The respondents directed the petitioners to pay 10% of the sale price of exported exempted goods, based on Rule 6(3)(b). The court found this direction unsustainable, emphasizing that Rule 6(6)(v) exempts exported goods from the provisions of Rule 6(3)(b). Therefore, the liability to pay 10% on the sale price of exempted goods does not apply when these goods are exported under bond.

4. Requirement of maintaining separate accounts for inputs used in dutiable and exempted goods:

The respondents contended that manufacturers must maintain separate accounts for inputs used in dutiable and exempted goods as per Rule 6(2). The court clarified that if exempted goods are exported, Rule 6(6)(v) applies, negating the need to maintain separate accounts or pay 10% of the sale price under Rule 6(3)(b).

5. Refund claims for Cenvat credit on inputs used in exempted goods:

The court acknowledged that the scheme under Rule 5 of the Cenvat Credit Rules, 2004 allows for the refund of unutilized Cenvat credit on inputs used in the manufacture of exported goods. This aligns with the objective of not exporting taxes but only the goods, ensuring the competitiveness of Indian products in international markets.

Conclusion:

The court concluded that the petitioners are entitled to remove goods under bond as per the provisions of Rule 19 of the Central Excise Rules, 2002. The directions to pay 10% of the sale price of exported exempted goods were deemed legally unsustainable. The petitioners were allowed to avail Cenvat credit for inputs used in the manufacture of exported goods, irrespective of the final products being exempt. The petition was allowed, and the rule was made absolute with no order as to costs.

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