2010 (2) TMI 956 - CGOVT - Central Excise

Rebate claims - alleged that respondents have not complied with the provisions of Notification No. 40/2006-Cus., dated 1-5-2006 inasmuch as they have been availing the facility of Cenvat credit under the Cenvat credit Rules, 2004 thereby misusing the DFIA Scheme Held that - Rebate claim in the instant case is of the duty paid on final product exported under DFIA Scheme - goods were exported on payment of duty in terms of Rule 18, by following the procedure laid down in Notification No. 19/2004-C.E. (N.T.), dated 6-9-2004 - There is no allegation that applicants have violated any of the provision of said notification - rebate of duty paid on finished products is admissible under Rule 18 of Central Excise Rules, 2002 read with Notification No. 19/2004-C.E. (N.T.)

Issues Involved:
1. Eligibility for rebate under Rule 18 of the Central Excise Rules, 2002 when goods are exported under the Duty-Free Import Authorization (DFIA) Scheme while availing Cenvat credit under the Cenvat Credit Rules, 2004.

Detailed Analysis:

Issue 1: Eligibility for Rebate under Rule 18 of the Central Excise Rules, 2002

Facts and Background:
The respondents filed various rebate claims for the duty paid on goods exported under Rule 18 of the Central Excise Rules, 2002, read with Notification No. 19/2004. The claims were scrutinized, and it was observed that the respondents exported goods under the DFIA Scheme, availing Cenvat credit on inputs used for manufacturing the exported goods. The original adjudicating officer rejected the rebate claims, asserting that the respondents misused the DFIA Scheme by availing Cenvat credit, thus violating Notification No. 40/2006-Cus., dated 1-5-2006.

Appeals and Grounds for Revision:
Aggrieved by the rejection, the respondents appealed to the Commissioner (Appeals), who allowed their appeals. The Commissioner, Central Excise, Bangalore-II, then filed revision applications on several grounds:
1. The Commissioner (Appeals) erred in holding that the rebate claim is admissible as long as the duty was paid on the final product and the export of goods was not in doubt.
2. The Commissioner (Appeals) incorrectly concluded that the violation of Notification No. 40/2006-Cus. was not established.
3. The Commissioner (Appeals) incorrectly interpreted the restriction on Cenvat credit application only to raw materials imported/procured against the DFIA.
4. The intention of Notification No. 40/2006-Cus. was to prevent dual benefits by disallowing Cenvat credit on inputs and granting rebate on the final product.
5. Any violation of the conditions under Notification No. 40/2006-Cus. should be addressed under the Central Excise Rules, 2002, and Cenvat Credit Rules, 2004.

Respondents' Arguments:
1. The DFIA Scheme and Notification No. 40/2006-Cus. do not prohibit the use of inputs on which Cenvat credit has been taken, only on inputs procured against DFIA.
2. No inputs were imported against DFIA for the relevant exports, and the DFIA scrips remained unused.
3. Notification No. 40/2006-Cus. bars the rebate of duty on inputs used in resultant products, not on the final product.
4. The original authority's rejection based on potential future events was incorrect.
5. The Commissioner (Appeals) correctly held that duty paid on the final product at the time of export entitles the exporter to a rebate.
6. The rebate claim should be considered within the scope of Rule 18 and relevant notifications, not based on other factors.
7. CBEC Circular No. 510/06/2000-CX. directed authorities to consider rebate claims based on Rule 18 and relevant notifications.
8. Notification No. 19/2004-C.E. (N.T.) does not debar claimants of Notification No. 40/2006-Cus. from claiming rebates.
9. The grievance should be addressed by denying Cenvat credit, not the rebate claim.
10. The appellate authority correctly interpreted the restriction on Cenvat credit application only to inputs procured against DFIA.
11. The language of Notification No. 40/2006-Cus. does not forbid taking Cenvat credit on inputs not procured against DFIA.
12. Any violation of Notification No. 40/2006-Cus. should be addressed under the Customs Act, 1962.

Government's Observations and Decision:
The government observed that the DFIA Scheme is governed by the Foreign Trade Policy (2004-2009) and Notification No. 40/2006-Cus. One condition was that no Cenvat credit shall be available on inputs imported or procured indigenously against the authorization. However, the respondents did not procure inputs against the authorization, thus they were eligible to take Cenvat credit on duty-paid inputs.

Notification No. 40/2006-Cus. was amended by Notification No. 17/2009-Cus., removing the restriction on availing such facilities. Circular No. 11/2009-Cus. also did not restrict the rebate of duty paid on resultant products exported under DFIA while availing Cenvat credit on inputs procured in the normal course.

The CESTAT, Bangalore, and the revisionary authority in similar cases held that the rebate of duty under Rule 18 on finished goods is permissible if inputs were procured in the normal course on payment of duty and not against the authorization.

Conclusion:
The government upheld that the rebate of duty paid on finished products is admissible under Rule 18 of the Central Excise Rules, 2002, read with Notification No. 19/2004-C.E. (N.T.), dated 6-9-2004. The revision applications were rejected as devoid of merit.

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