2007 (12) TMI 209 - HC - Central Excise

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 ... Export under bond - clearance of exempted goods under bond - application of Rule 19 of the Central Excise Rules, 2002 - excisable goods attracting nil rate are excisable - application of Rule 6(6)(v) of the Cenvat Credit Rules, 2004 - reversal under Rule 6(3)(b) of the Cenvat Credit Rules, 2004Export under bond - application of Rule 19 of the Central Excise Rules, 2002 - excisable goods attracting nil rate are excisable - Whether printed books attracting nil rate of duty can be cleared for export under bond/Letter of Undertaking under Rule 19 of the Central Excise Rules, 2002 - HELD THAT: - The Court held that goods appearing in the Schedule to the Central Excise Tariff Act at nil rate are nevertheless excisable and eligible for export under bond. Ministry of Finance guidance (Letter dated 8-11-2001) and prior decisions establish that exempted or nil-rated goods may be exported under the erstwhile Rule 13 (pari materia to Rule 19). Rule 19(1) read with Rule 19(3) therefore applies to printed books, and the revenue's contention that no bond is required because the goods attract nil rate overlooks liabilities that would arise if the goods are not exported. The bond/Letter of Undertaking is required to secure surrender of benefits obtained on the premise of export and to protect revenue against non-export. Accordingly, the petitioners are entitled to clear printed books under bond/Letter of Undertaking in terms of Rule 19. [Paras 5, 6]Printed books attracting nil rate are excisable and may be exported under bond/Letter of Undertaking under Rule 19 of the Central Excise Rules, 2002.Application of Rule 6(6)(v) of the Cenvat Credit Rules, 2004 - reversal under Rule 6(3)(b) of the Cenvat Credit Rules, 2004 - Whether Cenvat credit taken on inputs used in manufacture of printed books exported under bond is barred by Rule 6(1) or attracts reversal under Rule 6(3)(b) requiring payment of 10% of sale price - HELD THAT: - The Court analysed Rule 6 of the Cenvat Credit Rules, 2004 and held that sub-rule (6)(v) expressly exempts excisable goods cleared for export under bond from the operation of the bar in Rule 6(1) and from the reversal liability in Rule 6(3)(b). The legislative history and the Ministry circular of 8-11-2001 support that exempted goods exported under bond are not subject to the reversal/repayment provisions. Denying export under bond and thereby seeking to levy the 10% reversal on exported printed books would frustrate Rule 6(6)(v). Consequently, where the final product is exported under bond, the credit on inputs used in its manufacture is available and the 10% payment under Rule 6(3)(b) is not attracted. [Paras 7, 8, 9]Rule 6(6)(v) exempts goods exported under bond from the bar in Rule 6(1) and from reversal under Rule 6(3)(b); hence no 10% payment is payable for printed books exported under bond and Cenvat credit on inputs used in such exportable final products is available.Final Conclusion: Petition allowed. The petitioners are entitled to remove the printed books on furnishing the bond/Letter of Undertaking in the prescribed form; the directions requiring payment of 10% on exported printed books and prohibiting export under bond are set aside; rule made absolute with no order as to costs. 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.