[Chalapathy Rao Marthy]

Dear Sir, Whether a manufacturer can claim CENVAT refund, under notification no. 05/2006 dtd 14.03.2006 N.T., if the removal is towards 'deemend export' as deemed exports are excise free.

Dear Sri Chalapathy Rao Murthy Notification No. 5/2006 dt. 14.3.06 issued under Rule 5 of Cenvat Credit Rules, 2004. Rule 5 provides for refund of cenvat credit on inputs or input services used in the manufacture of excisable goods which are cleared for export under Bond or Letter of Undertaking. Further Notification No 5 stipulates certain conditions to decide the eligibility of refund. The First condition is "The Export of excisable goods are exported in accordance with the precedure laid down in the Central Excise Rules, 2002." Rule 19 read with Notification No 42/2001 CE NT dated 26.6.2001 deals with export of goods without payment of duty under Bond or Letter of Undertaking. On the other hand supply of goods to (a) 100% EOU (b) SEZ (c) EPCG holder (d) Advance Licence Holder are treated as Deemed Export under EXIM POLICY. These clearances are treated as 'Home Consumption ' in Central Excise and accordingly, exempted from Cenvat Duty under relevant Notifications. For the purpose of Rule 5 of Cenvat Credit Rules and Notification 5/2006 CE NT, the same cannot be treated as Export in view of the condition stipulated in the Notification (i.e.The final product is exported in accordance with the procedure laid down in the CE Rules, 2002). Further Rule 5 of Cenvat Credit Rule also clearly says goods are cleared for export under Bond or Letter of Undertaking. Accordingly, in my view, refund of cenvat credit under Notification 5/2006 cannot be claimed for Deemed Exports. S. Gokarnesan Advocate

[Jayant Kuvelkar]

I agree with the view expressed by Mr. Gokarnesan. There is one alternative of paying duty and claim refund of terminal excise duty under Foreign Trade Policy.However this way also has been shut because of availability of cenvat to EOU's.Also no EOU will like to procure duty paid goods. An interesting situation emerges in case a unit supplies majority of its products as deemed exports.Cenvat credit which it would have utilised in case of local dutiable clearances, gets accumulated which is a loss in practical terms.Is this correct?

AI Summary

CENVAT refund eligibility denied for deemed exports as Rule five requires clearance under bond or letter of undertaking.
Refund under Notification No. 5/2006 is unavailable for deemed exports because Rule 5 requires clearance for export under bond or Letter of Undertaking in accordance with the Central Excise Rules, 2002; deemed exports are treated as home consumption and exempted from excise, and the alternative of paying duty then claiming refund under the Foreign Trade Policy is generally impractical.