2012 (8) TMI 212 - AT - Central Excise

Claim of refund under Rule 5 of Cenvat Credit Rules, 2004 against exportation of 100% Cotton Terry Towels under bond. - Revenue was of the view that since final product was exempted from excise duty they could not have exported the goods under bond and they could not have taken Cenvat credit on inputs used in the manufacture of such exempted goods. - held that - this issue has been initially decided by the Bombay High Court in the case of Repro India (2007 (12) TMI 209 - BOMBAY HIGH COURT) and decision has been further affirmed by the Himachal Pradesh High Court in the case of CCE Vs. Drish Shoes Ltd. (2010 (5) TMI 334 - HIMACHAL PRADESH HIGH COURT) - Refund allowed.

Summary

Issues:
Refund claim under Rule 5 of Cenvat Credit Rules, 2004 against exportation of exempted goods; Eligibility for Cenvat credit on inputs used in the manufacture of exempted goods; Interpretation of Rule 6 of the Cenvat Credit Rules regarding reversal of Cenvat credit on inputs used in exempted goods; Applicability of High Court decisions on similar cases.

Analysis:
The case involved the Respondents, engaged in manufacturing various goods and availing Cenvat credit on excise duty paid on inputs and service tax paid on input services for their final products, mostly exported. The Respondents filed refund claims under Rule 5 of the Cenvat Credit Rules for different months against exportation of 100% Cotton Terry Towels under bond. The issue arose when the Revenue contended that since the final product was exempted from excise duty, Cenvat credit on inputs used in manufacturing exempted goods should not be allowed for export under bond. The Revenue challenged the decision in the case of Repro India, arguing against granting the refund claim based on the exemption. The Commissioner (Appeals) had earlier ordered the refund in line with the decision of the Bombay High Court in Repro India, leading to the Revenue's appeal against this decision.

The crux of the matter lay in the interpretation of Rule 6 of the Cenvat Credit Rules, which addresses the reversal of Cenvat credit on inputs used in exempted goods. The Respondents argued that as they had exported Terry Towels under bond, they were entitled to retain the Cenvat credit on inputs used in the manufacture of such goods, even though they were exempted. They relied on the exemption provided under Rule 6, which states that no reversal of credit is required when goods are exported under bond. The Respondents cited the decisions of the Bombay High Court in Repro India and the Himachal Pradesh High Court in CCE Vs. Drish Shoes Ltd., which supported their position. They contended that the High Court decisions had already settled the issue in their favor, emphasizing that there was no merit in the Revenue's argument against granting the refund.

Ultimately, the Appellate Tribunal, considering the precedents set by the High Courts in similar cases, upheld the decisions favoring the Respondents. The Tribunal rejected the appeals filed by the Revenue, thereby granting relief to the Respondents as per the High Court rulings. The judgment highlighted the importance of legal precedents in interpreting and applying tax laws, particularly in cases involving Cenvat credit on inputs used in the manufacture of exempted goods for export under bond.