Convertible foreign exchange requirement satisfied when export proceeds are routed through foreign banking channels and credited in rupees.

Refund of unutilized CENVAT credit under Notification No. 5/2006-CE (NT) read with Rule 5 was held admissible where export proceeds were received in Indian rupees through a foreign banking channel. The Tribunal treated remittance routed through the nostros account mechanism and traceable to overseas foreign exchange realisation as satisfying the requirement of receipt in convertible foreign exchange. It followed earlier decisions that a formal two-step conversion is unnecessary if the substance of the transaction shows export proceeds received through the prescribed banking route. The denial of refund on the ground of non-receipt of convertible foreign exchange was unsustainable, and the claims were allowed with consequential relief.

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Issues: Whether refund of unutilized CENVAT credit under Notification No. 5/2006-CE (NT) read with Rule 5 of the CENVAT Credit Rules, 2004 could be denied on the ground that the export proceeds were received in Indian rupees routed through a foreign bank rather than directly in foreign exchange.

Analysis: The condition for refund was the receipt of export proceeds in convertible foreign exchange. The amounts were credited in Indian rupees only after routing through foreign banking channels and the nostros account mechanism, with the foreign exchange component being received through an overseas bank and reported in the banking system. On the facts, the remittance in rupees was held to represent realization of foreign exchange through the prescribed banking route. The Tribunal followed its earlier decisions and the principle that a formal two-step conversion is not necessary where the transaction is, in substance, receipt of export proceeds in convertible foreign exchange.

Conclusion: The denial of refund on the ground of non-receipt of convertible foreign exchange was unsustainable and the issue was decided in favour of the assessee.

Final Conclusion: The refund claims were held admissible, the impugned orders were set aside, and the appeals succeeded with consequential relief.

Ratio Decidendi: Receipt of export proceeds in Indian rupees through a foreign banking channel, where the remittance is traceable to foreign exchange realization under the prescribed mechanism, satisfies the requirement of receipt in convertible foreign exchange for refund purposes.

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