2013 (10) TMI 1308 - CGOVT - Customs

Denial of drawback claim - applicant manufactured/exported the product in question contained raw material on which no duty was paid - applicant availed Cenvat credit on capital goods - violation of para 13 of the Notification No. 103/2008-Cus. (N.T.), dated 29-8-2008 - Whether the drawback claim, arising out of export of cotton yarn is hit by the proviso (ii) to the Rule 3(i) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, or not - Held that - From harmonious perusal of Circular/clarification, it is clear that AIR rate of DBK is available even where the inputs used in the export have suffered Nil rate of duty, because the drawback rate arrived at by taking into account also the duties suffered on export product at prior stage of manufacture. Further, taxes paid as input services and duty suffered on packing materials are to be factored in. As such, denials of AIR of drawback only by quoting Rule 3(1)(ii) of said Drawback Rules without considering clarification issued by the Board from time to time, is not correct and hence, is not tenable. Original authority also observes that the applicant has availed Cenvat facility of capital goods and hence violated the Provision contained in Board s Circular No. 103/2008-Cus. (N.T.), Government observes that condition of non-availment of Cenvat credit referred to in the context of said circular means non-availment of Cenvat credit on input or input services. The C.B.E. & C. vide Circular No. 42/2011-Cus., dated 22-9-2011, has clarified that the expression when Cenvat credit facility has not been availed , means Cenvat facility on inputs and input services and is to be understood as such. Hence, observation of lower authority on this count also is not tenable. Government further notes that Commissioner (Appeals) in his subsequent Order-in-Appeal No. 38/BPL/13, dated 5-2-2013, in the case of M/s. Anant Raison MP, has allowed drawback claim in such case. Therefore, Government holds that drawback claims in these cases are admissible to the applicant. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of duty drawback claims under Rule 3(1)(ii) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.
2. Impact of non-payment of duty on raw materials on duty drawback claims.
3. Applicability of CENVAT credit on capital goods affecting duty drawback claims.
4. Relevance of the Tribunal judgment in M/s. Rubfilla International Ltd. case.

Detailed Analysis:

Issue 1: Eligibility of Duty Drawback Claims
The primary issue revolves around whether the duty drawback claims arising from the export of cotton yarn are impacted by the proviso (ii) to Rule 3(1) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. The department's contention is that since "cotton" is a major raw material with no duty levied, the drawback benefit is not admissible. The definition of "Drawback" as per Rule 2(a) of the said rules indicates it is a rebate of duty and tax on imported or excisable materials or taxable services used in manufacturing the exported goods. Thus, the rebate applies to input and input services, not capital goods. The applicants argued that the All Industry Duty Rates (AIR) for export products are set considering the duty incidence on various inputs, including packing materials and input services, but not raw cotton, which is exempt from duty.

Issue 2: Non-payment of Duty on Raw Materials
The government observed that the original authority rejected the drawback claim because the exported goods contained raw materials on which no duty was paid, relying on Rule 3(1)(ii) of the Drawback Rules. However, the applicants contended that raw cotton is exempt from duty, and the AIR for drawback is based on average duty incidence on other inputs and input services. The C.B.E. & C. Circular No. 19/2005-Cus. clarified that Rule 3 is meant for determining AIR and not for altering rates for individual consignments. Further, the Board's D.O. Letter F. No. 609/98/2007-DBK stated that AIR of duty drawback is available even if inputs used in exports have a "Nil" duty rate, as it considers duties suffered at prior stages of manufacture.

Issue 3: CENVAT Credit on Capital Goods
The original authority also noted that the applicant availed CENVAT credit on capital goods, violating Notification No. 103/2008-Cus. (N.T.). However, the government clarified that the condition of non-availment of CENVAT credit refers to inputs and input services, not capital goods, as per C.B.E. & C. Circular No. 42/2011-Cus. Therefore, the observation of the lower authority on this count was deemed untenable.

Issue 4: Relevance of M/s. Rubfilla International Ltd. Case
The department relied on the Tribunal judgment in M/s. Rubfilla International Ltd., which was upheld by the Supreme Court. The applicants argued that their case differed as the AIR for cotton yarn considers duties on other inputs and input services. The government agreed that the Rubfilla case involved specific requirements for imported rubber, which did not apply to the present case of cotton yarn. The judgment in Rubfilla was not applicable as the AIR for cotton yarn was calculated considering duties on other inputs and input services, not raw cotton.

Conclusion:
The government set aside the impugned Orders-in-Appeal, allowing the revision applications. It was concluded that the AIR of duty drawback is admissible even if the inputs used have a "Nil" duty rate, considering the duties suffered at prior stages and on input services and packing materials. The observations regarding CENVAT credit on capital goods were also found invalid. The revision applications succeeded, and the drawback claims were deemed admissible to the applicant.