2017 (10) TMI 129 - AT - Central Excise

Tribunal grants CENVAT credit on re-exported inputs, emphasizes compliance with Customs rules

The Tribunal allowed the appeal in a case concerning the eligibility of availing CENVAT credit on re-exported imported inputs not used in manufacturing ... CENVAT credit - CVD paid on imported inputs - inputs - Department took the view that appellants were not eligible to avail CENVAT credit in respect of the imported inputs which had been re-exported - Held that: - What is not in dispute is that the imported inputs which had not been used in the manufacture of Relays, for various reasons, have been re-exported. It is not the case that, pursuant to such re-export, appellants have claimed any drawback in respect of duties suffered on the re-exported product or, for that matter, any export benefit thereon. From the facts on record, we find that it appears that they have not claimed even any refund or drawback in respect of the concession rate of customs duty initially paid on the imported inputs - once the imported inputs have been re-exported, this would bring about a legal position as if the said goods had not been imported at all. Appellant also complied with all the provisions of the CIGCRDMEG Rules while effecting re-export of the impugned goods. Identical situation came up in the case of M/s. MRF Ltd. Versus Central Excise and Service Tax [2016 (3) TMI 439 - CESTAT CHENNAI], where it was held that in the Board's circular No.283/117/96 dated 31.12.1996 it has been clearly stated that the credit availed on inputs which are re-exported as such under Bond need not be reversed. Appeal allowed - decided in favor of appellant. Issues:1. Eligibility of availing CENVAT credit on imported inputs re-exported without being used in the manufacture of final products.2. Interpretation of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996.3. Application of Rule 3(5) of CCR 2004 regarding removal 'as such' of inputs.4. Compliance with the definition of 'input' in Rule 2(k) of Cenvat Credit Rules, 2004.Issue 1: Eligibility of availing CENVAT credit on re-exported imported inputs:The case involved the appellant importing inputs for manufacturing relays at a concessional rate of customs duty. Some imported inputs were re-exported without being used in the manufacture of final products, leading to a dispute over the eligibility of availing CENVAT credit on these re-exported inputs. The Department contended that the appellant was not entitled to the credit for inputs that were re-exported. The original authority and the Commissioner (Appeals) upheld this view, resulting in a demand for payment and imposition of penalties. The appellant argued that they complied with the Customs Rules by re-exporting the unused materials and cited precedents to support their case.Issue 2: Interpretation of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996:The appellant claimed compliance with the Customs Rules by re-exporting the imported materials not used in manufacturing relays. The appellant argued that the re-export was done to reduce their obligation under the Rules. The Tribunal analyzed the provisions of the Customs Rules to determine whether the re-export of unused inputs aligned with the requirements set forth in the Rules. The Tribunal noted that the appellant did not claim any drawback or refund for the duties paid on the re-exported goods, indicating their adherence to the Rules.Issue 3: Application of Rule 3(5) of CCR 2004 and definition of 'input' in Rule 2(k) of Cenvat Credit Rules, 2004:The Department relied on Rule 3(5) of CCR 2004 and the definition of 'input' in Rule 2(k) of Cenvat Credit Rules, 2004 to argue that the unused imported materials re-exported by the appellant could not be considered as inputs. The Department contended that since the materials were not used in manufacturing final products, they did not qualify as inputs under the defined terms. The Commissioner's finding emphasized that inputs must be used in the manufacture of final products to be eligible for credit, leading to the denial of credit for the re-exported materials.Issue 4: Compliance with the Cenvat Credit scheme and precedent analysis:The Tribunal examined the appellant's compliance with the Cenvat Credit scheme and compared the case to precedents cited by both parties. The Tribunal highlighted that the appellant did not claim any refund or drawback for the duties paid on the re-exported inputs. The Tribunal emphasized the intention of the Cenvat Credit scheme to allow credit for duties suffered by the assessee. By not claiming any refund or drawback post-re-export, the Tribunal found it unjust to deny the CENVAT credit for the additional duty of customs already paid by the appellant. The Tribunal relied on previous decisions to support its conclusion that the impugned order denying the credit could not be sustained.In conclusion, the Tribunal set aside the impugned order, allowing the appeal and providing consequential relief as per the law. The judgment emphasized the importance of aligning with the provisions of the Customs Rules and the Cenvat Credit scheme while determining the eligibility of availing credit on re-exported imported inputs not used in the manufacturing process.