2006 (7) TMI 491 - AT - Central Excise

Cenvat/Modvat - Deemed credit - supplies made to EOUs/Merchant Exporters are not covered by the expression export under bond - Grey fabrics - reject the refund claim - limitation - HELD THAT - In the present case an amount of Rs. 65 lakhs has already been utilized on payment of duty on the final products cleared for home consumption. As per Notification Deemed Credit can be taken or the credit is allowed at the time of clearance of the final products. This credit is utilized for payment of duty. The respondents have not directly exported the final products. They had cleared the final products to EOUs/Merchant Exporters. In view of this reason it would not be possible for them to adjust the credit accumulated. In that case also the refund is possible. In other words the entitlement to Deemed Credit is governed by para 2 of the Notification which does not restrict the same to final products cleared directly by the respondent under bond. The interpretation of the Commissioner (Appeals) is correct. We would like to observe that even in Rule 5 of the Cenvat Credit Rules there is a provision for refund of Cenvat Credit even in cases where the inputs are used in intermediate products cleared for export and the accumulated credit could not be adjusted for payment of Central Excise duty. When this is the general rule there is no justification for denial of the refund claim when the final products were cleared to other EOUs. As regards the question of time bar we do not find this question in the Show Cause Notice. Moreover the Tribunal in the case of CCE C Ahmedabad-I v. Anjani Synthetics Ltd. 2001 (6) TMI 93 - CEGAT MUMBAI has held that refund claim in respect of Deemed Credit is not deniable on the ground of limitation as explanation B to Section 11B of Central Excise Act 1944 does not specify anything about refund claim arising under deemed credit. In these circumstances we do not find any merit in the Revenue s appeal and the same is dismissed. Thus we hold that the respondent is entitled for Deemed Credit in respect of the final products which are cleared to EOUs/Merchant Exporters and the deemed credit is not restricted to the products directly exported by them under bond as contended by the respondents. Thus the Revenue appeal is dismissed.

Issues Involved:
1. Entitlement to Deemed Cenvat Credit for supplies made to 100% EOUs/Merchant Exporters.
2. Interpretation of the term "export under bond."
3. Eligibility for refund of unutilized Deemed Credit.
4. Applicability of limitation period under Section 11B of the Central Excise Act, 1944.

Detailed Analysis:

1. Entitlement to Deemed Cenvat Credit for Supplies Made to 100% EOUs/Merchant Exporters:
The appellant took Deemed Cenvat Credit on Grey Fabrics used in manufacturing processed fabrics per Notifications 53/2001 and 6/2002 under Rule 11 of the Cenvat Credit Rules, 2002. The processed fabrics were cleared to 100% EOUs and units procuring goods under Notification 43/2001-C.E. The Revenue issued a Show Cause Notice for recovery of the credit on the grounds that the final products were not exported under bond but cleared to other 100% EOUs/Merchant Exporters. The Commissioner demanded Rs. 65,00,000/- being the Cenvat Credit wrongly availed/utilized and imposed a penalty of Rs. 5,00,000/- under Rule 13 of the Cenvat Credit Rules, 2002.

2. Interpretation of the Term "Export Under Bond":
The appellant argued that the term "Export" should include Deemed Export, as the supplies made to EOUs are recognized as Deemed Export under Chapter 10 of the EXIM Policy. The Commissioner held that the expression "export under bond" in Rule 6 of the Cenvat Credit Rules does not cover Deemed Export. The Tribunal noted that the proviso to para 3 of the Notification allows credit utilization towards payment of duty on final products cleared for home consumption or export on payment of duty, and where such adjustment is not possible, by refund to the manufacturer.

3. Eligibility for Refund of Unutilized Deemed Credit:
The Tribunal found that the appellant was not in a position to utilize beyond Rs. 65 lakhs of the accumulated credit and filed a refund claim. The lower authority rejected the refund on the ground that there was no evidence of export by the appellants. The Tribunal observed that the Deemed Credit is to be utilized towards payment of duty on the clearance of final products, and the clearance can be for home consumption or export. The Tribunal held that the entitlement to Deemed Credit is governed by para 2 of the Notification, which does not restrict the same to final products cleared directly under bond.

4. Applicability of Limitation Period Under Section 11B of the Central Excise Act, 1944:
The Revenue argued that the refund claim was time-barred. The Tribunal noted that the Show Cause Notice did not propose to reject the refund claim on the ground of limitation. The Tribunal referred to the case of CCE & C, Ahmedabad-I v. Anjani Synthetics Ltd. - 2001 (132) E.L.T. 688 (Tri.-Mumbai), which held that refund claims in respect of Deemed Credit are not deniable on the ground of limitation as explanation 'B' to Section 11B of the Central Excise Act, 1944 does not specify anything about refund claims arising under deemed credit.

Conclusion:
The Tribunal allowed the appeal of the appellant, setting aside the Commissioner's order demanding Rs. 65,00,000/- and the penalty. The Tribunal dismissed the Revenue's appeal, holding that the respondent is entitled to Deemed Credit for final products cleared to EOUs/Merchant Exporters and that the deemed credit is not restricted to products directly exported under bond. The Tribunal also held that the refund claim is not time-barred.

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