2016 (11) TMI 1726 - AT - Central Excise

Refund of CENVAT Credit - input services utilised for manufacture of goods at nil rate of duty supplied to the SEZ as well as exported - Rule 5 of Cenvat Credit Rules, 2004 - HELD THAT - There is an exception provided in sub-rule (6) of Rule 6 of Cenvat Credit Rules, 2004 to the application of sub-rule (1) to (4) thereof. Clearances made to SEZ are not governed by the denial provision. Appellant s submission is therefore certainly correct to say that any attempt to deny the refund of input credit shall make the services or goods exported costlier and will amount to export or deemed export of taxes which is not permitted in international trade practice as well as supply to SEZ domestically. Therefore, denial of refund to the appellant by the application of Rule 5 of Cenvat Credit Rules, 2004 is not reasonable, for which, the order of the authority below is set aside - appeal allowed.

Summary

Issues Involved:
Whether Cenvat credit availed on input services used for manufacturing goods at nil rate of duty supplied to SEZ and exported entitles the appellant to a refund under Rule 5 of Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Cenvat Credit Refund Eligibility
The appellant argued that there is an exception under Rule 6(6) of the Cenvat Credit Rules, 2004, which should apply in this case. They contended that goods supplied to SEZ are akin to the export of goods, and denying Cenvat credit refund would increase the cost of goods, leading to the export of taxes, which is against international trade practices. On the other hand, the Revenue's Representative claimed that supplying to SEZ at nil rate of duty does not automatically classify goods as exempted, hence Rule 5 does not apply for a refund.

Issue 2: Application of Rule 6(6) of Cenvat Credit Rules
The Tribunal examined Rule 6(6) of the Cenvat Credit Rules, 2004, which provides an exception to the denial provision for clearances to SEZ. The Tribunal agreed with the appellant's argument that denying the refund would make goods costlier, resulting in the export of taxes, contrary to international trade practices. Therefore, the denial of refund under Rule 5 was deemed unreasonable. Consequently, the Tribunal set aside the authority's order and allowed the appeal, directing the authority to grant the refund in compliance with applicable laws, including any limitations.

Conclusion
The Tribunal ruled in favor of the appellant, emphasizing that denying the refund of input credit in such cases would lead to an increase in the cost of goods and result in the export of taxes, which is not permissible in international trade practices. The decision highlighted the importance of adhering to the provisions of Rule 6(6) of the Cenvat Credit Rules, 2004, in cases involving clearances to SEZ. The appeal was allowed, and the authority was instructed to process the refund while considering any relevant legal limitations.