No denial of refund on non-realisation of export proceeds

CA Bimal Jain

We are sharing with you an important judgement of the Hon’ble CESTAT, Delhi in the case of P&P Overseas Vs. Commissioner of Central Excise, Delhi-III [(2015) 59 taxmann.com 226 (New Delhi – CESTAT)] on the following issue:

Issue:

Whether refund of accumulated Cenvat credit filed under Rule 5 of the Cenvat Credit Rules, 2004 (“the Credit Rules”) can be denied on the ground that the sales proceeds in respect of goods exported have not been realised by the Appellant?

Facts & Background:

P & P Overseas (“the Appellant”) being a 100% EOU could not utilize the Cenvat credit attributable to the Input services namely, Custom House Agent’s services and Courier services (“Impugned services”), used in or in relation to manufacture of the finished products. Accordingly, the Appellant filed two claims for the period from July 2008 to September 2008 and October 2008 to December 2008 for cash refund of the accumulated Cenvat credit under Rule 5 of the Credit Rules. The Department denied the refund claims on following two grounds:

Impugned services are not eligible for Cenvat credit; and
Sales proceeds in respect of goods exported have not been received by the Appellant
On appeal being filed to the Ld. Commissioner (Appeals), denial of refund claims was upheld. Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Delhi.

Held:

The Hon’ble CESTAT, Delhi held that denial of refund claims on ground that the sale proceeds in respect of goods exported have not been received, is not sustainable as there is no such condition neither in Rule 5 of the Credit Rules nor under Notification No. 5/2006-C.E. (N.T.) dated March 14, 2006 (“Notification No. 5”) issued there under.

The Hon’ble Tribunal further held that pertaining to denial of refund claims on ground that Impugned services are not eligible for Cenvat credit, the matter stands decided in favour of the Appellant in its own case by the Ld. Commissioner (Appeals) and is no longer valid.

Accordingly, the Hon’ble Tribunal allowed the refund claims filed by the Appellant.

Important to Note

Here it is pertinent to note that vide the Union Budget 2012, Rule 5 of the Credit Rules got substituted, by a new rule, resulting into various changes in the refund mechanism available for exporter of goods/ services.

Following the amendment in Rule 5 of the Credit Rules, the Central Board of Excise and Customs (“the CBEC”) had issued Notification No. 27/2012–CE(N.T.) dated June 18, 2012 (“Notification No. 27”) which has superseded earlier Notification in this regard i.e. Notification No. 5.

Notification No. 27 prescribes new procedures, safeguards, conditions and limitations with respect to the manner in which the refund would be claimed by the exporter of goods/ services. Accordingly, the substituted procedures, conditions etc., are now required to be adhered for filing refund under Rule 5 of the Credit Rules.

Further, it is worthwhile to note the changes made in Rule 5 of the Credit Rules in the Union Budget, 2015 vide Notification No. 06/2015-C.E. (N.T.) dated March 1, 2015 (Effective from March 1, 2015), in term of which Export goods have been defined by inserting a Clause (1A) in Explanation 1 to Rule 5 of the Credit Rules, which is reproduced as under:

“(1A) “export goods” means any goods which are to be taken out of India to a place outside India“.

Accordingly, with the insertion of the words “taking goods out of India to a place outside India”, fate of refunds/ rebate in case of Deemed exports [which is defined under Para 7.01 of Chapter 7 of the Foreign Trade Policy 2015-20 (Para 8.1 of Chapter 8 of the erstwhile Foreign Trade Policy 2009-14)] becomes doubtful as “Deemed Exports refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange”.

However, the CBEC vide Circular No. 1001/8/2015-CX dated April 28, 2015 has clarified that clearance from DTA to SEZ is export and eligible for rebate of duty. In other words, the benefit under Rule 5 of the Credit Rules will not cover the clearances made from DTA to EOUs.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons)

BY CA Bimal Jain