Cenvat credit on exempted goods exported

[Hasmukh Patel]

Dear Sir,

We are manufacturer of exempted goods. We export more then 90% of exempted goods. As per cenvat credit rule there is no cenvat credit on inputs & input services for manufacturing of exempted final finished goods.

If a manufacturer manufacture excisable goods & export it without payment of duty , then we availed cenvat on inputs, and the same exporter export it's exempted goods then it will be export with input duty burden ?

[Suryanarayana Sathineni]

Dear Mr. Patel,

Rule 6 of Cenvat credit Rules, prescribes the procedure of Cenvat credit on the manufacturer who manufacturers both dutiable and exempted products. In this situation, the following options are prescribed:

• No Cenvat Credit on the inputs used exclusively in the exempted goods
• To maintain separate inventory for common inputs used in both dutiable and exempted goods
• If not possible to maintain separate inventory, the manufacturer is required to pay 6% of the value of the product at the time of clearance ; or
• to follow the prescribed under sub-rule 3A ( formulae based)
• To inform the option exercised ( any of the above) to the department which is not to be withdrawn in the remaining part of the financial year in which such option is exercised.

However, certain categories of clearances are not covered under the purview of the above Rule and one among them was " Exports under Bond". Unfortunately, by amending the Notification No. 42/.2001-CE,( pertaining to Export under Bond procedure), facility of export of exempted goods under Bond was withdrawn vide Notification No. 24/2010-CE ( N T) Dated 26.05.2010.

In view of the above background, it is clear that you are not eligible for Cenvat credit on the inputs used in the export of exempted goods.

Regards

Suryanarayana

[Rajagopalan Ranganathan]

Sir,

Notification 42/2001-CE (NT) dated 26.6.2001 as amended lays down the conditions and procedures for export of all excisable goods, except Bhutan without payment of duty from the factory of the production or the manufacture or warehouse or any other premises as may be approved by the Commissioner of Central Excise.

Condition (iv) of the said Notification lays down that export of excisable goods which are chargeable to nil rate of duty or are wholly exempted from payment of duty, other than goods cleared by a hundred per cent export-oriented undertaking, shall not be allowed under this notification,

Therefore you cannot export under bond excisable goods which is chargeable to Nil rate of duty or unconditionally exempted like in your case and you cannot avail credit of duty paid on the inputs used in the manufacture of said goods. However you can claim rebate of duty paid on inputs used in the manufacture of excisable goods which are exported under rule 18 of Central Excise Rules, 2002. The procedure for claiming such rebate is laid down in Notification No.21/2004-CE (NT) dated 6.9.2004 as amended. You may go through this Notification and claim the duty paid on the inputs used in the manufacture of export goods. Or you can claim duty drawback under Customs, Central Excise Duties and Service Tax Drawback Rules,1995

[Hasmukh Patel]

See Noti 21/2004 CE (NT). It is applicable to export of excisable goods not for exempted goods.

[Rajagopalan Ranganathan]

Sir,

Notification No. 21/2004-CE (NT) dated 06.09.2004 as amended does not talk about final products whether dutiable or exempted. It talks about duty paid on materials used in the manufacture of export goods only. If the final product is dutiable then the duty paid on the inputs will get merged with the cost of the final product. If cenvat credit availed on the inputs then the same can be utilised for payment of duty on the final product exported and the same can be claimed as rebate under rule 18. There is no need to claim the rebate of duty paid on inputs. If the final product is exempted or chargeable to nil rate of duty then no cenvat credit can be availed but the duty paid on the inputs utilised in the manufacture final product exported can be claimed as rebate under the said Notification, This is my view.

[Hasmukh Patel]

See the full noti 21/2004 CE(NT). It's mentioned procedure to clear goods under ARE-2. See the condition of ARE-2 that goods export under bond. As per amend noti 42 we can not clear exempted goods under bond. So we acn not claim for refund of duty on inputs for man. of exempted goods.

[CSSANJAY MALHOTRA]

Dear Mr. Patel,

Input Duty Rebate is available in case of Export of Exempted Goods (Movement of goods under ARE-1 & Input-Output norms to be approved from Assistant Commissioner of Central Excise). You may even refer to CBEC Manual wherein you will find that the Export includes both Exempted & Excisable Goods.

However am in agreement with Mr. Suryanarayan that vide Notification No. 24/2010 -CE dated 26.05.10, with amendment made therein, Rule 6(6) does not hold goods in case of CENVAT eligibility for Exports cleared under Bond.

[YAGAY and SUN]

According to the FTP of India, as amended only Goods and Services are to be exported not the taxes. By following this principle, no tax is levied on export of goods and services (except in some conditions/ or on goods just for saving/protecting the natural resources).

Further, We also endorse the replies submitted by our learned friends on this matter.

[RAM SHARMA]

Dear Experts,

We are manufacturer cum merchant exporter, we are doing manufacturing sale and trading sale in domestic market as well as export market. whether our trading export will be treated as exempted service and cenvat to be reverse under rule 6(3) of cenvat credit rule 2004.

Please advice.

Thanks

AI Summary

Cenvat credit limitations for exempted goods affect export treatment and shift focus to rebate or drawback procedures.
Rule 6 of the Cenvat Credit Rules offers alternatives for manufacturers of both dutiable and exempted products, including denial of credit for inputs exclusively used for exempted goods, separate inventory maintenance, payment in lieu of segregation, or formula allocation, with the chosen option communicated to the department for the financial year. Amendment of export notifications removed the facility to export exempted goods under bond, which affects eligibility to preserve input duty via bond clearance; affected parties must therefore consider rebate or drawback procedures and ARE documentation requirements for any claim of duty paid on inputs.