Difference between Cenvat credit and TED refund

[Guest]

I have recently had a case of TED refund rejected by DGFT but after going through the points and basis of rejection, it appears that the department is interpreting that CENVAT Credit and TED Refund are the same thing.

What is the actual difference between the two?

[Rajagopalan Ranganathan]

Sir,

    If you take credit of duty paid on inputs, capital goods and input services under CENVAT Credit Rules,2004 it amounts to refund of CENVAT duty paid on such goods and services.  Therefore you cannot claim the refund of TED from DGFT.  If you file a refund claim for TED Under the relevant FTP, DGFT is required to examine whether you have availed credit of duty paid on such goods and services.  If you declare that you have availed CENVAT credit then DGFT will reject your refund claim.  Taking credit under CENVAT Credit Rules, 2004 will be tantamount to refund of TED.

[Guest]

Mr. Ranganathan,

Sorry I was not clear. DGFT has rejected the claim on the grounds that the supplier of the Capital Goods (under EPCG license under Invalidation) has paid the Excise Duty by CENVAT Credit. We, the licensee, have never availed any credit. We have paid the Excise Duty to the supplier and as I understand, the payment of Excise duty by PLA or by CENVAT credit is the same for Excise department but DGFT says that it is irrelevant that I have not claimed CENVAT. They say both cant avail. This does not match the conditions of the Paras 5.6, 8.3c and 8.5 of FTP along with Rule 3(4) and Rule 5 of CENVAT Credit. This is why I think they are mixing TED Refund and CENVAT Credit as one and same.

[PAWAN KUMAR]

Dear Sir,

As per my understanding, Terminal excise duty is the central excise duty which the supplier discharges on removal of capital goods from their factory to the receipient holding EPCG authorization as per para 8.2(c) of FTP. As per which supplier can claim benefit listed in para 8.3(c) i.e. Terminal Excise Duty refund however there is also an option if the receipient want to claim refund which requires an disclaimer certificate by the supplier of goods with each excise inovice is to be enclosed declaring the particulars of goods supplied and duty amount involved as well as declaring no objection if the receipient is taken TED Refund from the DGFT as he has not availed any benefit under para 8.3(c) of FTP. Based on such disclaimer certificate receipient will file the claim and also declare that he has not taken Cenvat Credit of duty reimbursed (Paid) to supplier on such supplies of capital goods.   

[Radha Arun]

The authority that rejected your claim for TED refund has clearly not understood the nature and purpose of the Cenvat credit scheme. 

In effect, the scheme gives back the excise duty on inputs used, so that this does not inflate the value for terminal excise duty, and so that terminal excise duty is levied on the product value only and not on the tax portion of its input cost. The 'giving back' is in the form of a 'Cenvat credit', which is used like cash to pay excise duty on the final (terminal) product. The fact that terminal excise duty on the capital goods has been paid out of Cenvat credit does not take away their duty-paid nature.

AI Summary

Cenvat credit treats input duty as refunded via credit, barring a terminal excise duty refund claim if credit was availed. Cenvat credit restores excise duty on inputs, capital goods and input services by granting a usable credit; once Cenvat credit is availed for a given duty, a separate Terminal Excise Duty refund for that duty cannot be claimed. For TED refund claims, authorities must confirm the recipient has not taken Cenvat credit; if the recipient seeks refund, the supplier must provide a disclaimer certificate with invoices confirming duty paid and consenting to the recipient's refund claim. The Cenvat scheme ensures input tax neutrality and prevents tax-on-tax.