Manufacturers of nil duty goods can claim CENVAT credit on inputs if exported under Rule 6(5) and 6(6)

CESTAT Allahabad allowed the appeal regarding reversal of CENVAT credit on menthol crystals exempted under notification 4/2008-CE dated 01.03.2008. The tribunal held that manufacturers of goods chargeable to nil duty are eligible for CENVAT credit on inputs under Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, if goods are exported. The decision followed HP HC precedent in Commissioner of Central Excise v. Drish Shoes Ltd., which was upheld by SC. The impugned order was set aside.

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Issues:
The judgment involves issues related to demand for reversal of Cenvat credit on Menthol Crystals exempted under a notification, applicability of Rule 6 of the CENVAT Credit Rules, 2004, and whether the benefit of Rule 6(6) can be extended on export goods.

Summary:
The Appellant, a manufacturer of Menthol/Menthol Crystals & DMO, faced a demand for reversal of Cenvat credit on Menthol Crystals exempted under a notification, while DMO remained chargeable to duty. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals) in the first round of litigation. However, the Tribunal in an earlier order held that Rule 11(3) was not applicable in this case. Regarding Rule 6, the Tribunal stated that if fully exempted excisable goods are exported under bond, Cenvat credit would not be liable to be reversed. The matter was remanded for ascertainment of exports.

In the subsequent round of adjudication, the Additional Commissioner contended that since the goods claimed as exported were not against LUT or bond, the benefit of Rule 6(6) could not be extended on export goods. The demand was confirmed again, but the penalty was set aside. The Appellant then filed a fresh defense stating that a portion of the disputed quantity was cleared for home consumption, while the rest was exported. The Additional Commissioner again confirmed the demand and imposed a penalty, which was set aside by the Commissioner (Appeals).

The Appellant argued that the exported goods were cleared under ARE-1, indicating they were exported under Bond/LUT. Cenvat credit was not required to be reversed for exempted finished goods exported under bond/LUTs, as per settled law. The Appellant cited several judgments in support of this argument.

After considering the arguments and perusing the records, the Tribunal found that the issue was covered by a judgment of the High Court of Himachal Pradesh, which held that an assessee manufacturing goods chargeable to nil duty could avail Cenvat credit on inputs used in the manufacture of such goods if they were exported. The Tribunal set aside the impugned order and allowed the appeal filed by the Appellant with consequential relief as per law.

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