Commr. of C. Ex. vs Gillette India Ltd.

Ajay Kumar Mittal, J.—This appeal has been preferred by the revenue under Section 35H(1) of the Central Excises & Salt Act, 1944 (in short, "the Act") against the orders, dated 9-2-2004 [(2004 (175) E.L.T. 339 (Tri.-Del.)] and 26-3-2004, Annexures P. 7 and P. 8 passed by the Customs Excise and Service Tax Appellate Tribunal, New Delhi (in short, "the Tribunal"). On 24-1-2005, the appeal was admitted to consider the following substantial questions of law:-

"(a) Whether Hon''ble CESTAT was legally correct in holding that cash refund of Modvat credit on inputs used for manufacture of goods exported shall be allowed in cases where the manufacturer/exporter has not tried to utilize the credit for payment of duty on the goods cleared for export or for home-consumption as stipulated under Rule 57F(13) of Central Excise Rules, 1944?

(b) Whether the CESTAT was legally correct in holding that it was mandate on the revenue to allow the manufacturer to utilize the credit of specified duty in respect of inputs towards payment of duty on any final product cleared for home consumption or for export on payment of duty and it was not a mandate on the assessee?"

A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The respondent-assessee is engaged in the manufacture and export of primary batteries and cells falling under Chapter heading 8506 of Central Excise Tariff Act, 1985. Refund claims were filed by the assessee under Rule 57F(13) of the Central Excise Rules, 1944 (in short, "the Rules") on the ground that it had exported most of the manufactured goods under bond and had a balance of Modvat credit in RG23A Part II as unutilized. The Deputy Commissioner, Central Excise Division I, Gurgaon vide letter, dated 12-11-1999, Annexure A. 1 rejected the claim on the ground that full duty was refundable in case where the goods were cleared on payment of duty for export under Rule 12(1)(a) of the Rules and in the instant case, since the goods had been exported under bond without payment of duty, the said refund claims did not fall under any of the provisions of Rule 57F(13) or Rule 12(1)(a) of the Rules. Aggrieved by the order, the assessee filed appeal before the Commissioner (Appeals). Vide order, dated 9-3-2000, Annexure A. 2, the Commissioner (Appeals) remanded the matter for de novo decision by processing the application for refund under Rule 57F(13) of the Rules. The claim was again examined by the original authority and the same was rejected vide order, dated 24-4-2001, Annexure A. 3. Thereafter, the assessee again filed appeal before the Commissioner (Appeals). Vide order, dated 15-9-2003, Annexure A. 6, the appeal was dismissed. Aggrieved by the order, the assessee filed appeal before the Tribunal. Vide order, dated 9-2-2004, Annexure A. 7, the appeal was allowed and the order, dated 15-9-2003 passed by the Commissioner (Appeals) was set aside. Hence the present appeal by the revenue.

Learned counsel for the revenue submitted that the assessee was not entitled to refund of Modvat credit in terms of Rule 12(1)(a) or 13 or Rule 57F(13) of the Rules. He relied upon the findings recorded by the Assessing Officer as well as the Commissioner (Appeals).

On the other hand, learned counsel for the assessee relied upon judgment of the Bombay High Court in Associated Aluminium Industries Pvt Ltd. Vs. Union of India, and urged that the assessee was entitled for benefit of refund of Modvat credit in terms of Rules 12 and 13 of the Rules and the same was to be refunded to the respondent under Rule 57F(13) of the Rules.

After hearing learned counsel for the parties, we do not find any merit in the appeal.

It would be apposite to reproduce the relevant statutory provisions:-

"12. Rebate of duty.- (1) The Central Government may, from time to time, by notification in the Official Gazette, grant rebate of-

(a) duty paid on the excisable goods;

(b) duty paid on materials used in the manufacture of goods;

If such goods are exported outside India or shipped as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft, to such extent and subject to such safeguards, conditions and limitations as regards the class or description of goods, class or description of materials used for manufacture thereof, destination, mode of transport and other allied matters as may be specified in the notification:

Provided that if the Commissioner of Central Excise or as the case may be the Maritime Commissioner of Central Excise is satisfied that the goods have in fact been exported, he may, for reasons to be recorded in writing, allow, the whole or any part of the claim for such rebate, even if all or any of the conditions laid down in any notification issued under this rule have not been complied with.

(2) Where the Central Government does not grant under Clause (a) of sub-rule (1) either wholly or partially any rebate of duty paid on goods exported to a country outside India, it may, in order to promote exports or fulfill obligations arising out of any treaty entered into between India and the Government of that country, provide, by notification in the Official Gazette, for payment to the Government of that country an amount not exceeding the duty paid on such goods which are exported out of India to that country.

(3) No rebate of duty in respect of excisable materials used in the manufacture of goods exported out of India under Clause (b) of sub-rule (1) shall be allowed, if the exporter avails of drawback of the said duty under the Customs and Central Excise Duties Drawback Rules, 1995 or avails of credit of said duty under Section AA of Chapter V of the Central Excise Rules, 1944.

Explanations - In this rule, the expressions,-

(i) "manufacture" includes the process of blending of any goods or making alterations or any other operation thereon;

(ii) "materials" includes raw materials, consumables (other than fuel) components, semi-finished goods, assemblies, subassemblies, intermediate goods, accessories, parts and packaging materials required for manufacture of export goods but does not include capital goods used in the factory in or in relation to manufacture of export goods.

(iii) Omitted.

(4) The provisions of this rule shall not apply to such excisable goods, export of which are prohibited under any law for the time being in force.

Export in bond of goods on which duty has not been paid.-

(1) The Central Government may, from time to time, by notification in the Official Gazette-

(a) permit export of specified excisable goods in bond without payment of duty in the like manner, as the goods regarding which the rebate is granted under sub-rule (1) of Rule 12, from a factory of manufacture or warehouse or any other premises as may be approved by the Commissioner of Central Excise;

(b) specify materials, removal of which without payment of duty from the place of manufacture or storage for use in the manufacture in bond of export goods, may be permitted by the Commissioner of Central Excise;

(c) allow removal of excisable material without payment of duty for the manufacture of export goods, as may be specified, to be exported in execution of one or more export orders; or for replenishment of duty paid materials used in the manufacture of such export goods already exported for the execution of such orders, or both;

subject to such safeguards, conditions and limitations as regards the class or description of goods, class or description of materials used for manufacture thereof, destination, mode of transport and other allied matters as may be specified in the notification which the exporter undertakes to abide by entering into a bond in the proper form with such surety or sufficient security, and under such conditions as the Commissioner approves.

(2) The Central Government may, from time to time, by notification in the Official Gazette, permit export of specified excisable goods in bond, without payment of duty from a factory of manufacture or warehouse, to Nepal or Bhutan, subject to such conditions or limitations as regards the class of goods, destination, mode of transport and other matters as may be specified therein.

Explanation I. - In this rule, the expression "manufacture" includes the process of blending of any goods or making alterations or any other operation thereon.

Explanation II. - In this rule, the term "materials" shall include raw materials, consumables (other than fuel), components, semi-finished goods, assemblies, sub-assemblies, intermediate goods, accessories, parts and packaging materials used in the manufacture of export goods but does not include capital goods used in the factory in or in relation to manufacture of export goods."

"57F. Manner of utilization of inputs and the credit allowed in respect of duty paid thereon-

(1) to (12) xxxxxxx

(13) Where any inputs are used in the final products which are cleared for export under bond or used in the intermediate products cleared for export in accordance with sub rule (4), the credit of specified duty in respect of the inputs so used shall be allowed to be utilised by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amounts subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification in the Official Gazette."

A perusal of the above provisions shows that under Rule 12, the Central Government may grant rebate of duty paid on the excisable goods and on the material used in the manufacture of the goods, which are exported out of India. Under this situation, the exporter clears the finished goods for export on payment of duty and thereafter, claims rebate of the excise duty paid thereon. Rule 13 provides for the export of goods without payment of duty on execution of a bond. Under this provision, no excise duty is required to be deposited with the excise authorities at the time of clearance of the finished goods for export. Refund of the Modvat credit accumulated where exports are made under Rule 13 is provided under Rule 57F(13) of the Rules according to which, the manufacturer shall be allowed refund of such amounts subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification in the official Gazette. The Central Government issued notification No. 85/87-C.E., Dated 1-3-1987 as amended by Notifications No. 2/94-C.E.(N.T.), dated 24-1-1994; No. 26/95-C.E.(N.T.), dated 6-6-1995 and No. 40/95-C.E.(N.T.), dated 27-12-1995 describing the safeguards, conditions and limitations for refund of Cenvat credit allowed in inputs used in goods exported under bond. It reads thus:-

"[1] Refund of CENVAT Credit allowed on inputs used in goods exported under bond. - In exercise of the powers conferred by sub-rule (13) of Rule 57F of the Central Excise Rules, 1944, the Central Government hereby directs that refund of credit of specified duty allowed in respect of inputs used in or in relation to the manufacture of final products which are cleared for export under bond may be allowed subject to the safeguards, conditions and limitations, set out in the Appendix to this notification.

APPENDIX

The goods are exported in accordance with the procedure specified in Chapter IX of the Central Excise Rules, 1944, as modified, wherever applicable, by Rule 173-0 of the said rules.

The claims for such refund are submitted not more than once in any quarter in a calendar year.

Provided that, notwithstanding anything stated above, the claims for such refund may be made for the calendar month where the average export clearances of dutiable goods in value terms is seventy per cent or more of the total clearances of dutiable goods in the preceding three months.

The manufacturer undertakes to refund to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, on demand being made, within six months of the date of payment, any refund erroneously paid to him.

The manufacturer shall prepare an application in Form A below and present to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise in whose jurisdiction the factory from which the goods are exported is situated together with the Bill of Lading or Shipping Bill or Export Application duly certified by the Customs Authorities to the effect that goods have in fact been exported.

The refund shall be allowed only in those circumstances where a manufacturer is not in a position to utilize the credit of the duty allowed under Rule 57A against goods exported during the quarter or month to which the claim relates.

The application for refund together with the proof of due exportation and the relevant extracts of form RG 23A or the deemed credit register maintained in respect of textile fabrics, as the case may be in original are lodged with the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of the period specified in Section 11B of the Central Excise Act, 1944 (1 of 1944).

The refund of excise duty shall be allowed by the said Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise."

In the present case, the goods had been exported under bond without payment of duty. During the relevant period all clearances had been made by the assessee on payment of duty from Modvat account. It had not effected any clearance for export on payment of duty. The Modvat credit on inputs contained in the goods exported was, thus, not capable of being utilized within the meaning of Rule 57F(13) of the Rules. All the conditions required under Rule 57F(13) and notification No. 85/87-C.E., dated 1-3-1987 as amended had been satisfied i.e. export of goods under bond, utilisation of credit of inputs used to manufacture export goods for domestic clearances, inability of the assessee to utilise the Modvat credit as set out in the Modvat scheme and availability of excess credit with the assessee even thereafter.

The Tribunal while accepting the appeal of the assessee had recorded in its order, dated 9-2-2004, Annexure A. 7 as under:-

"It is contended on behalf of the assessee that the view taken by the Commissioner is erroneous. Rule 12 provides for export of goods on payment of duty under claim for rebate. Under this situation, the exporter clears the finished goods for export on payment of duty and thereafter, claims rebate of the excise duty paid thereon. Further, the excise duty can either be paid by making cash deposit in the account current (PLA) or by debiting in the RG23A Part II register (Modvat credit register). Appellant further submits that Rule 13 provides for the export of goods without payment of duty on execution of a bond. Under this provision no excise duty is required to be deposited with the excise authorities at the time of clearance of the finished goods for export. Therefore, according to the appellant, the assessee has a choice of adopting either the procedure under Rule 12 or Rule 13 for clearing its finished goods meant for export. Refund of the Modvat credit accumulated where exports are made under Rule 13 is provided under Rule 57F (13). This rule is applicable only in those circumstances where exports have already taken place under bond. It is contended that during the relevant period all clearances had been made by the appellant on payment of duty from Modvat account. The appellant had not effected any clearance for export on payment of duty. As a result, according to the appellant, Modvat credit on inputs contained in the goods exported was not capable of being utilized within the meaning of Rule 57F(13) and the appellant was entitled to the refund. The appellant has satisfied all the conditions required under Rule 57F(13), namely that the goods must be exported under bond; credit of inputs used to manufacture export goods be utilized for domestic clearances or for exports on payment of duty; and excess credit is available with the assessee even thereafter.

We heard Departmental representative also. The interpretation given by the Commissioner (Appeals) on the wording of Rule 57F(13) does not seem to be correct. Mandate provided under the sub rule is on the Revenue to allow the manufacturer to utilize the credit of the specified duty in respect of inputs towards payment of duty of excise on any final product cleared for home consumption or for export on payment of duty. It is not a mandate on the assessee as interpreted by the Commissioner. Under these circumstances, we find no reason to deny the refund claim made by the appellant."

The findings recorded by the Tribunal have not been shown to be illegal or perverse in any manner. Consequently, the substantial questions of law are answered against the revenue and thus, the appeal being devoid of any merit stands dismissed.