2016 (3) TMI 225 - AT - Central Excise

Cenvat credit - input services utilised for manufacture of goods at nil rate of duty supplied to the SEZ as well as exported - entitlement to refund of the Cenvat credit under 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 and appeal is allowed. The authority below granting refund shall act in accordance with law looking to the law on limitation, if any, applicable. - Decided in favour of assessee

Summary

Issues:
Whether Cenvat credit availed on input services for goods supplied to SEZ and exported entitles appellant to refund under Rule 5 of Cenvat Credit Rules, 2004.

Analysis:
The issue in this appeal pertains to the entitlement of the appellant to a refund of Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004 for input services used in manufacturing goods supplied to SEZ and exported. The appellant argued that Rule 6(6) provides an exception, equating goods supplied to SEZ with exported goods. Denying Cenvat credit refund would lead to an increase in the cost of goods, resulting in the export of taxes, contrary to international trade practices.

The Authorized Representative for Revenue contended that supplying to SEZ at a 'nil' rate of duty does not automatically classify goods as exempted. Consequently, Rule 5 does not apply, and the appellant is not eligible for a refund. After hearing both sides and examining the records, it was noted that Rule 6(6) of the Cenvat Credit Rules, 2004 exempts clearances to SEZ from the denial provision. Denying the appellant a refund of input credit would inflate the cost of exported goods, tantamount to exporting taxes, which is not permissible in international trade practices or domestic supply to SEZ. Therefore, the denial of refund based on Rule 5 was deemed unreasonable, leading to setting aside of the authority's order and allowing the appeal. The authority responsible for granting the refund is directed to comply with the law, including any applicable limitations.

In conclusion, the Tribunal held that denying the refund of Cenvat credit to the appellant for input services used in manufacturing goods supplied to SEZ and exported would result in the export of taxes, contrary to international trade practices. Therefore, the denial of refund under Rule 5 of Cenvat Credit Rules, 2004 was deemed unreasonable, and the appeal was allowed, with directions for the authority to act in accordance with the law, considering any applicable limitations.