Unavailed Cenvat under Rule 5 and Refund of Service Tax on Outward Services

[Ashok Chopra]

Respected Forum,

I am 100% EOU and availing Refund of Unavailed Cenvat under Rule 5 and also filing refund of Service Tax paid on outward services for the export of final product.

Now, i am being asked by excise authorities that as per recent amendment in Rule 5(2) i am not entitled for Unavailed Cenvat, if i am getting refund of Service Tax paid on outward services for the export of final product.  I am eligible for only one refund either Unavailed Cenvat under Rule 5 or refund of Service tax paid on outward services for the export of final product.

Pls let me know, whether department is correct or not?

Pls provide me notification or clarification to show my superior

As per new amendment in Rule 5(2), person who claims rebate of service tax under the (Service Tax Rules, 1994) in respect of such tax.

what is the difference in rebate and refund and exemption?

i shall be thankful, if you will clarify my above queries.

thanks and regards

[Radha Arun]

From the facts narrated, the department appears to be right.

In excise and service tax, 'rebate'  is used to denote a refund of duties / taxes payable on export. Exemption is a waiver of duty / tax, which is sometimes operationalised through a process of refund.

[SURESH ASTEKAR]

The wordings of Rule 5(2) of Cenvat Credit Rule, 2004, are causing the confusion.  The refund of accumulated Cenvat Credit and the claim of rebate of the output service tax paid on the exported services are totally different claims.  What Rule 5(2) seeks to prohibit is the refund of the accumulated cenvat credit in case the claimant claims the rebate of the input/input services credit as rebate, which is clear from the expressions "such duty" and "such tax".   Denial of refund of accumulated cenvat credit on the ground that the claimant has claimed the rebate of the output tax paid on the exported service (or for that matter terminal excise duty paid on the exported goods), is wholly illogical.  The claimant can claim the rebate of both the input stage and terminal tax/duty.  However, the claimant can also claim the input stage duty/tax under Rule 5 of the CCR, 2004 and the terminal ED/service tax under the provisions of Central Excise/Service Tax Rules.  Further, the Drawback Notification No. 92/2012 - Customs (N.T.) dt: 4.10.2012 provides for two rates of drawback i.e., Drawback when Cenvat facility has not been availed and when Cenvat facility has not been availed.  Therefore, if drawback claimed is when cenvat facility has been availed, such claim of drawback does not affect the availment of cenvat credit.  Consequently, the refund of the accumulated cenvat credit cannot be denied on the ground that drawback has been claimed.  Perhaps the CBEC needs to clarify the position to clear the confusion.

It is, however, to be noted that the refund under Rule 5 of CCR, as per Rule 5(1) can be granted only to those manufacturers or service providers who export their goods/services without payment of duty/tax.  In such a situation, the claim of rebate of the output tax paid on exported services or terminal Central Excise duty paid on goods exported, may not arise. 

AI Summary

Unavailed Cenvat refund entitlement may conflict with service tax rebate claims; Rule 5(2) interpretation and clarification required. The issue is whether Rule 5 permits refund of accumulated unavailed Cenvat credit where the exporter also claims a rebate of output-stage service tax on exported services. Authorities have treated the amended provision as disallowing both recoveries concurrently; commentators argue the refunds are distinct-input-stage Cenvat refund under Rule 5 and output-stage service tax rebate are separate claims-and that Rule 5(2) should only prevent duplication of recovery of the same input duty/tax, necessitating CBEC clarification.