2008 (6) TMI 155 - HC - Central Excise

EOU - refund of credit on inputs - Tribunal hold that there is nothing in the Cenvat Credit Rules which prohibits 100% EOUs availing Cenvat credit. Rule 5 of the said Rules provides for refund of credit availed by the exporter where they do not utilize the goods as inputs for manufacture of 100% export - Tribunal rightly hold that EOU is entitled to take credit on the duty of the inputs procured indigenously and when they were not in a position to utilize the same, they are entitled for refund

Summary

Issues:
1. Appeal against the order passed by CESTAT.
2. Interpretation of Cenvat Credit Rules, 2004.
3. Eligibility of 100% Export Oriented Unit (EOU) for Cenvat credit.
4. Refund of duty paid by EOU under Rule 5 of Cenvat Credit Rules.

Analysis:

The appeal was filed by the Revenue against the order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) questioning the correctness of the order. The main contention raised was regarding the interpretation of the Cenvat Credit Rules, 2004. The Revenue argued that the products manufactured by the claimant were chargeable to NIL rate of duty as per the Tariff, and Cenvat credit should be allowed only in terms of the provisions of the Rules. They further contended that the CESTAT had misconceived the provisions of Rule 6(6) of the Cenvat Credit Rules in applying it to the case at hand. The Tribunal, however, found that the respondent, a 100% Export Oriented Unit (EOU), was entitled to Cenvat credit under Rule 5 of the Rules, as they were unable to utilize the credit due to exporting all their products and having no domestic clearance. The Tribunal referred to a previous judgment to support their decision that 100% EOU is eligible for Cenvat credit on duty paid inputs and entitled to a refund under Rule 5 of the Rules.

In the detailed examination of the grounds raised in the appeal, the Court found that the substantial question of law proposed by the Revenue did not hold merit. The Court emphasized that there was no prohibition in the Rules for 100% EOUs to avail Cenvat credit. Rule 5 specifically provided for the refund of Cenvat credit availed by exporters who do not utilize the goods as inputs for manufacturing 100% export. Since the respondent in this case had availed the Cenvat credit facility but could not utilize it due to exporting all their products, they were rightfully entitled to the refund of the duty paid. The Court cited a precedent to reinforce the entitlement of 100% EOU to Cenvat credit and refund under Rule 5 of the Rules.

In conclusion, the Court held that the appeal lacked merit, and there was no substantial question of law for consideration in favor of the Revenue. The impugned orders were deemed to be incorrect in law and were set aside. Consequently, the appeal was dismissed, affirming the decision in favor of the respondent EOU regarding the eligibility for Cenvat credit and refund under the Cenvat Credit Rules, 2004.