2010 (5) TMI 334 - HC - Central Excise

Rule 6(1) exception covers excisable, nil-duty goods; exporters entitled to CENVAT credit under Rule 6(5)/6(6) and refund under Rule 5

HC held that the exception to Rule 6(1) applies to 'excisable goods' (including dutiable and nil-duty goods), so an assessee manufacturing goods ... Refund of CENVAT Credit - availment of input services under Rule 6(1) - duty paid on input used in manufacture of exempted goods exported - wholly exempted final products under the provisions of Rule 5 - Held that:- Sub-rule (5) of Rule 6 of the Rules of 2002 was applicable only in case of exempted goods. That meant that the exception was not applicable in case of dutiable goods. It appears that this led to anomalous situations. For example, if the goods were dutiable and were exported, credit for CENVAT could not be claimed in respect of input of those goods, at least under the aforesaid exception clause. To overcome this kind of anomalous situations, exception clause contained in sub-rule (6) of Rule 6 of CENVAT Credit Rules, 2004 has been made applicable to all excisable goods. A Division Bench of Bombay High Court in Repro India Ltd. v. Union of India [2007 (12) TMI 209 - BOMBAY HIGH COURT], while dealing with a similar situation and interpreting the provisions of Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, has held that expression 'excisable goods' is wider than the expression 'exempted goods', as it includes both dutiable as also exempted goods. Thus, we hold that an assessee, manufacturing goods chargeable to nil duty, is eligible to avail CENVAT credit paid on the inputs under the exception clause to Rule 6(1), as contained in Rule 6(5) of CENVAT Credit Rules, 2002 and Rule 6(6) of CENVAT Credit Rules, 2004, used in the manufacture of such goods, if the goods are exported. Question No. 1 is answered accordingly. As regards question No. 2, it is clear from a bare reading of Rule 5 of CENVAT Credit Rules, 2004 that a manufacturer, who exports the final products which are exempt from duty, can claim refund of CENVAT. So, this question is also answered against the appellant. Appeal is dismissed. Issues:1. Eligibility of an assessee manufacturing wholly exempted goods to avail CENVAT credit.2. Claiming refund of CENVAT credit for goods exported.Issue 1:The case involved a dispute regarding the eligibility of an assessee manufacturing wholly exempted goods to avail CENVAT credit under Rule 6(1) of the CENVAT Credit Rules, 2002/CENVAT Credit Rules, 2004, for duty paid on inputs used in the manufacture of such exempted goods, even if those goods are exported. The respondent, a manufacturer of finished leather, exported some leather and claimed a refund of CENVAT paid on inputs used in finishing the exported leather. The Assistant Commissioner initially rejected the claim, citing Rule 6(1) which prohibits CENVAT credit on inputs used in the manufacture of exempted goods. However, the Commissioner (Appeals) allowed the appeal, emphasizing the promotion of export of goods manufactured in India. The Tribunal upheld the Commissioner's decision, stating that the exception clause of Rule 6 allows for credit/refund of CENVAT paid on inputs for excisable products exported under bond. The High Court held that an assessee manufacturing goods chargeable to nil duty is eligible to avail CENVAT credit under the exception clause of Rule 6(1), as contained in both the 2002 and 2004 Rules, if the goods are exported.Issue 2:The second issue revolved around whether a manufacturer of wholly exempted goods can claim a refund of CENVAT credit for inputs used in the manufacture and export of such goods under Rule 5 of the CENVAT Credit Rules, 2004. The High Court clarified that Rule 5 allows a manufacturer who exports final products exempt from duty to claim a refund of CENVAT. Therefore, the Court answered this question against the appellant, affirming the right of the manufacturer to claim a refund in such circumstances.In conclusion, the High Court dismissed the appeal based on the findings that the assessee was eligible to avail CENVAT credit for wholly exempted goods if they were exported and that a manufacturer of exempted goods could claim a refund of CENVAT credit for exported goods under the relevant rules.