2009 (1) TMI 171 - AT - Service Tax

100% EOU Gherkin Exporter Granted Service Tax Refund on Input Services

The Tribunal allowed the appeal, granting the appellant, a 100% EOU exporting Gherkins, a refund of service tax credit on input services for exported ... Cenvat credit on input services - refund of unutilized Cenvat/service tax credit - Rule 6(1) of the Cenvat Credit Rules, 2004 - exclusion for inputs/input services used in manufacture of exempted goods - Rule 6(6)(v) of the Cenvat Credit Rules, 2004 - exception for goods cleared for export under bond - export under bond by a 100% EOU - fundamental principle that exports should not suffer excise/service taxCenvat credit on input services - refund of unutilized Cenvat/service tax credit - Rule 6(1) of the Cenvat Credit Rules, 2004 - exclusion for inputs/input services used in manufacture of exempted goods - Whether the appellant 100% EOU exporting goods chargeable to nil rate or exempted is entitled to refund of unutilized service tax credit availed on input services - HELD THAT: - The Tribunal examined whether the claim for refund of unutilized service-tax credit could be rejected on the ground that Rule 6(1) prohibits Cenvat credit when inputs or input services are used in manufacture of exempted goods. The authorities below held that because the final products were exempted or nil-rated, credit could not be taken and hence refund was not admissible. The Tribunal recalled the basic principle that exports should not bear excise or service tax and that the Cenvat scheme exists to avoid cascading. Applying that principle, the Tribunal held that where the conditions in Rule 6 permit (notably the exception in sub-rule (6)(v)) credit can be availed and refunded when unutilized. Consequently the mere fact that final products are exempted or nil-rated does not automatically bar refund where the statutory exception applies and the exports do not suffer tax incidence. [Paras 6, 7, 8, 9, 11]The appellant is entitled to claim refund of the unutilized Cenvat/service-tax credit availed on input services used in relation to the manufacture of the exported goods.Rule 6(6)(v) of the Cenvat Credit Rules, 2004 - exception for goods cleared for export under bond - export under bond by a 100% EOU - fundamental principle that exports should not suffer excise/service tax - Whether exports by a 100% EOU fall within the scope of Rule 6(6)(v) as 'cleared for export under bond' so as to render sub-rule (1) inapplicable - HELD THAT: - The Tribunal construed Rule 6(6)(v) purposively and rejected the narrow interpretation adopted by the lower authorities that confined the provision only to exports effected under bonds executed under Central Excise Rules, 2002 in the ordinary sense. Noting that every 100% EOU executes an all-purpose B-17 bond and an undertaking with the Development Commissioner to secure export obligations, the Tribunal held that such exports must be treated as exports 'under bond' for the purposes of Rule 6(6)(v). A narrow reading would lead to taxation of inputs or input services used in exported goods, contrary to the fundamental principle that exports should not suffer excise/service tax. Therefore Rule 6(1) does not apply to goods exported by a 100% EOU covered by sub-rule (6)(v). [Paras 9, 10, 11]Exports by a 100% EOU are covered by Rule 6(6)(v) as exports 'cleared for export under bond', and hence Rule 6(1) does not bar Cenvat credit/refund in such cases.Final Conclusion: The appeal is allowed: the Tribunal holds that exports by a 100% EOU fall within Rule 6(6)(v) and, accordingly, the appellant is entitled to Cenvat credit on input services used for manufacture of exported goods and to refund of unutilized credit. Issues:Refund of unutilized service tax credit on input services for exported goods under the 100% EOU scheme.Analysis:The appeal was filed against the Order-in-Appeal passed by the Commissioner of Customs (Appeals) Bangalore. The appellant, a 100% EOU exporting Gherkins, sought a refund of service tax credit on input services amounting to Rs. 9,43,693/- and Rs. 4,40,167/- for specific periods. The lower authority rejected the refund claims citing Rule 6(1) of Cenvat Credit Rules, 2004, which disallows credit on input services for exempted final products. The Commissioner (Appeals) upheld the rejection, emphasizing the ineligibility of availing credit on service tax paid for exempted goods. The appellant argued that Rule 6(6)(v) exempts goods cleared for export under bond from Rule 6(1) restrictions, citing relevant case laws.The appellant contended that the show cause notice was issued under Rule 3(2) but the refund claim was rejected under Rule 6(1) without proper opportunity for submission, violating natural justice principles. They argued that Rule 6(1) restrictions do not apply to goods cleared under bond as per Rule 6(6)(v). The appellant emphasized that their 100% EOU status necessitates execution of a comprehensive bond, making their exports equivalent to exports under bond. They highlighted the importance of export of goods over the execution of a bond, challenging the authorities' narrow interpretation of 'export under bond' under Central Excise Rules, 2002.The Tribunal analyzed the fundamental principles of excise taxation, emphasizing that exported goods should not bear excise duty. Referring to Rule 6(1) and Rule 6(6)(v) of Cenvat Credit Rules, the Tribunal held that goods exported by a 100% EOU should be considered as exported under bond, entitling them to avail credit on input services. The Tribunal criticized the authorities' narrow interpretation, stating that denying credit on exported goods contradicts the basic principle of no excise duty on exports. Citing relevant case laws and the decision of the Hon'ble Mumbai High Court, the Tribunal concluded that Rule 6(6)(v) covers all exports by a 100% EOU, allowing the refund of unutilized credit. Consequently, the appeal was allowed.In conclusion, the Tribunal's detailed analysis focused on the interpretation of Cenvat Credit Rules, the principles of excise taxation, and the entitlement of 100% EOUs to avail credit on input services for exported goods. The decision highlighted the importance of ensuring that exported goods do not suffer the incidence of duty, emphasizing the need for a broad interpretation of rules to prevent undue financial burden on exporters.