2015 (3) TMI 900 - CGOVT - Customs

Claim of duty drawback - allegation that applicant had wrongly claimed and was sanctioned drawback claim at higher rate as applicant had availed Cenvat credit on the input services used in respect of impugned exported goods - Held that - Rule 3(1) of the said Drawback Rules, 1995 stipulates that the amount of drawback can be reduced by taking into account the lesser duty or tax paid by way of rebate, refund or credit obtained. The plain wording of said provision reveal that if any amount has been availed as credit on any inputs, used in manufacture of final product, then such Cenvat credit should be reduced from eligible drawback. The rate of drawback applicable for different exports are notified by Government by issuing a Notification under Rule 3(1) of Drawback Rules after considering all the relevant factors including the amount of duty involved on inputs & input services. So, the drawback rate fixed has taken into account the service tax paid on input services also. As such department has accepted the availment of Cenvat credit and subsequent reversal of the same prior to export as non-availment of Cenvat credit on inputs. Government finds that once department accepted initial availing of Cenvat credit and subsequent reversal of same prior to export as non-availment of Cenvat facility on inputs, they cannot adopt different yardstick for input services whose credit was reversed subsequent to exports. Reversal of Cenvat credit before utilization amounts to non-taking of credit that such reversal can be done subsequent to export of goods. Government further observes that the department has treated availment of Cenvat credit on inputs and reversed subsequently before exports as non-availment of Cenvat credit on inputs and had allowed drawback at the higher rate @ 16% initially. At that time no dispute of non-reversal of Cenvat credit of input services was raised. The said point was raised subsequently and demand was raised on the ground that applicant had availed Cenvat credit of input services. It means original authority was also not clear about the issue in the beginning. So, no mala fide can be attributed to the applicant. Since, applicant has reversed the Cenvat credit in input services of ₹ 80,47,036/- along with interest of ₹ 31,74,220/- when the dispute arose and claimed that said amount was not utilized and remained in balance, so this reversal has also to be treated as non-availment of Cenvat credit on input services Government is of the considered opinion that applicant is entitled for drawback claims at higher rate @ 16% of FOB value of exports and therefore holds that the initial sanction of drawback claim @ 16% is legal & proper - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for higher rate of duty drawback.
2. Interpretation of "non-availment of Cenvat credit."
3. Applicability of subsequent reversal of Cenvat credit.
4. Validity of the Commissioner (Appeals) order.
5. Legal precedents and their applicability.

Issue-wise Detailed Analysis:

1. Eligibility for Higher Rate of Duty Drawback:
The applicant, engaged in manufacturing synthetic filament yarn and synthetic staple fiber, claimed a higher duty drawback rate of 16% on exports made between January 2008 and March 2008, asserting non-availment of Cenvat credit. Initially, this drawback was sanctioned. However, authorities later found that the applicant had availed Cenvat credit on input services, entitling them only to a 3% drawback rate. The department issued a show cause notice, adjudicating that the excess drawback of Rs. 15,79,26,612/- was recoverable.

2. Interpretation of "Non-availment of Cenvat Credit":
The applicant argued that the notification specified non-availment of Cenvat credit on inputs, not input services. They cited Notification No. 68/2007-Cus., which did not explicitly include input services, whereas Notification No. 103/2008-Cus. (effective from September 2008) did. The applicant contended that during the relevant period, there was no requirement to reverse Cenvat credit on input services to claim the higher drawback rate.

3. Applicability of Subsequent Reversal of Cenvat Credit:
The applicant reversed the Cenvat credit on inputs before export and later reversed the credit on input services with interest when the issue was raised. They argued that such reversal should entitle them to the higher drawback rate. They cited several legal precedents, including the Supreme Court's judgment in Chandrapur Magnet Wires Pvt. Ltd. v. Collector of Central Excise, which held that reversal of Modvat credit amounts to non-availment.

4. Validity of the Commissioner (Appeals) Order:
The Commissioner (Appeals) upheld the original order, rejecting the applicant's appeal on the grounds that the condition of non-availment of Cenvat credit includes both inputs and input services. The applicant challenged this interpretation, stating that the appellate authority's order was non-speaking and did not consider relevant legal precedents.

5. Legal Precedents and Their Applicability:
The applicant cited various judgments supporting their position that reversal of Cenvat credit amounts to non-availment, including:
- Chandrapur Magnet Wires Pvt. Ltd. v. Collector of Central Excise.
- Hello Mineral Water (P) Ltd. v. Union of India.
- Commissioner of Central Excise v. Diplast Plastics Ltd.
- Commissioner of Central Excise v. Ashima Dyecot Ltd.
- CCE, Mumbai v. Bombay Dyeing & Mfg. Co. Ltd.

The department argued that these judgments were distinguishable and not applicable to the present case. However, the Government observed that the judgments clearly state that reversal of Cenvat credit before utilization amounts to non-taking of credit, and such reversal can be done subsequent to export.

Conclusion:
The Government concluded that the applicant is entitled to the higher drawback rate of 16%, as the reversal of Cenvat credit on input services, along with interest, should be treated as non-availment. The impugned order-in-appeal was set aside, and the revision application was allowed, deeming the initial sanction of the higher drawback rate as legal and proper.