NOTE
ON CENVAT CREDIT REFUND TO MANUFACTURER/SUPPLIER TO EXPORTERS
Madhukar
N Hiregange
FCA,
ISA.
Rajesh
Kumar T. R.
ACA,
ISA, LLB.
In recent years, there has been increased export
from India in the automobile, pharmaceuticals, garments
and other sectors. These sector would source their inputs
be it components parts, chemicals, drugs, fabrics from
local manufacturers either on payment of duty or without
payment of duty under CT-1 or Notification 43/2001.
There are two issues,
which are creating a problem to the industry in this regard.
The first is whether the manufacturer is admissible for
the cenvat credit itself for use in the payment of duty
on same/other final product for domestic removals. Second
whether the refund on the accumulation of such credit
is admissible.
Utilisation of Accumulation
for Domestic Clearances: The Cenvat Credit Rule
6(3) sets out that where the excisable inputs on which
cenvat credit is availed are used in exempted goods the
manufacturer would require to reverse 8% on the price
of the such goods when sold exclusive of all taxes. However
the exception is where the inputs are used in exempted
goods which are cleared to a free trade zone, special
economic zone, 100% EOU, EHTP, STP, UN or international
organisation or notification under Notification 108/95
or cleared for export under bond in terms of Central
Excise Rules 2002. This rule however does not specify
that the reversal is not required in case of supplies
to exporters under CT-1 or Notification 43/2001-CE dated
21.6.2001, which are used in the manufacture of final
products, which are ultimately exported. The department
at times is even directing the assessees to discharge
the 8% duty due to this anomaly.
However the decision of
the Tribunal in several cases comes to the rescue in this
instance. In the case of CCE Vs Hastings Jute Mills {2001(135)
ELT 708} the Kolkata Tribunal observed that in bond clearances
of exempted or nil rated goods are not disqualified for
Modvat Credit under Rule 57CC (analogous to Present Rule
6 of Cenvat Credit Rules 2002). Consequently the suppliers
who supply under CT-1 or notification 43/2001 would be
admissible for cenvat credit, which could be used for
the domestic clearances. This is also backed up by other
decisions of the Tribunal in cases like
- Lloyds Metal & Engineers Ltd.
Vs. CCE 2002 (147) E.L.T. 255 (Tri.)
- India Poly Fibres Ltd. vs CCE 1999
(111) ELT 48 (Tri)
- CCE vs. Steelco Gujarat Ltd. 2000
(121) ELT 557 (Tri)
Refund of Accumulated
Credits: Rule 5 of Cenvat Credit Rules 2002 reads
as follows: " where any inputs are used in the
final products which are cleared for export under bond
or letter of undertaking, as the case maybe, or used
in the intermediate products cleared for exports,
the cenvat credit so utilized by the manufacturer towards
payment of duty of excise on any final product cleared
for home consumption or export on payment of duty and
where for any reason such adjustment is not possible,
the manufacturer shall be allowed refund
of such amount subject to such safeguards, conditions
and limitations as may be specified."
Notification 11/2002 allows
for the inputs used in export products. However the conditions/
safeguards specify only the manufacturer exporter and
do not provide for the supporting manufacturer to get
the benefit.
The Trade has represented
this especially after the garment industry came into the
excise net in recent times at various forums. The specific
clarification from the Board is still awaited.
The Kolkata Bench of the
Tribunal in a recent case has ruled that such a facility
would be available. {CCE vs U.I.C.Wires Ltd. 2003 (158)
ELT 723} In this decision the Members held that the objection
that goods were not cleared for export directly from the
manufacturing premises of the department was rejected.
It was clarified that accumulated credit, which cannot
be used for payment of duty for any final product cleared
for home consumption or for payment of duty on exports
is to be allowed as a refund under Rule 5 of the Cenvat
Credit Rules 2002.
The exporter of various
products, therefore were and are in a position to negotiate
with their manufacturing suppliers to pass on the duty
paid on the inputs used in the manufacture of intermediate
products. This would bring down the input cost by 5-10
% depending on the value addition. The manufacturing supplier
would also not be worse off as the duty paid on his inputs
would be available as credit.
