2009 (1) TMI 171 - AT - Service Tax

100% EOU was exporting Gherkins in Brine attracting NIL rate of duty u/ch 2001000. Gherkins in Vinegar or Acetic Acid is exempted vide Notification No. 6/2006-CE - appellants availed credit of service tax and cess paid by them on input services for the period from 15.03.2006 to 31.10.2006 and 01.11.2006 to 31 01.2007. Since, the credit taken was not utilized, they applied for refund amounting to Rs. 9,43,693/- and Rs. 4,40,167/- in terms of Rule 5 of the CCR 2004 Department denied the benefit on the ground that the final product was exempted and hence they are not eligible for availing cenvat credit u/r 6(1) further the assessee did not file any bond for export held that that Rule 6(6)(v) would be covering even all exports of final products by a 100% EOU and, therefore, would not be hit by Rule 6(1) as far as the entitlement to Credit on input/input service used in relation to the manufacture of final products exported by a 100% EOU is concerned further to claim refund u/r 5, there is no pre conditions to file any bond under central excise

Summary

Issues:
Refund of unutilized service tax credit on input services for exported goods under the 100% EOU scheme.

Analysis:
The appeal was filed against the Order-in-Appeal passed by the Commissioner of Customs (Appeals) Bangalore. The appellant, a 100% EOU exporting Gherkins, sought a refund of service tax credit on input services amounting to Rs. 9,43,693/- and Rs. 4,40,167/- for specific periods. The lower authority rejected the refund claims citing Rule 6(1) of Cenvat Credit Rules, 2004, which disallows credit on input services for exempted final products. The Commissioner (Appeals) upheld the rejection, emphasizing the ineligibility of availing credit on service tax paid for exempted goods. The appellant argued that Rule 6(6)(v) exempts goods cleared for export under bond from Rule 6(1) restrictions, citing relevant case laws.

The appellant contended that the show cause notice was issued under Rule 3(2) but the refund claim was rejected under Rule 6(1) without proper opportunity for submission, violating natural justice principles. They argued that Rule 6(1) restrictions do not apply to goods cleared under bond as per Rule 6(6)(v). The appellant emphasized that their 100% EOU status necessitates execution of a comprehensive bond, making their exports equivalent to exports under bond. They highlighted the importance of export of goods over the execution of a bond, challenging the authorities' narrow interpretation of "export under bond" under Central Excise Rules, 2002.

The Tribunal analyzed the fundamental principles of excise taxation, emphasizing that exported goods should not bear excise duty. Referring to Rule 6(1) and Rule 6(6)(v) of Cenvat Credit Rules, the Tribunal held that goods exported by a 100% EOU should be considered as exported under bond, entitling them to avail credit on input services. The Tribunal criticized the authorities' narrow interpretation, stating that denying credit on exported goods contradicts the basic principle of no excise duty on exports. Citing relevant case laws and the decision of the Hon'ble Mumbai High Court, the Tribunal concluded that Rule 6(6)(v) covers all exports by a 100% EOU, allowing the refund of unutilized credit. Consequently, the appeal was allowed.

In conclusion, the Tribunal's detailed analysis focused on the interpretation of Cenvat Credit Rules, the principles of excise taxation, and the entitlement of 100% EOUs to avail credit on input services for exported goods. The decision highlighted the importance of ensuring that exported goods do not suffer the incidence of duty, emphasizing the need for a broad interpretation of rules to prevent undue financial burden on exporters.