2021 (3) TMI 238 - HC - Service Tax

100% EOU - Refund of the accumulated CENVAT Credit - Output Service of Call Centre provided by the Assessee was exempted under the Notification, having been exported to foreign country, ignoring the effect of Rule 6 of the CENVAT Rules 2004 - interpretation and interplay of Rules 5 and 6 of CENVAT Rules - can a refund under Rule 5 be granted by the Excise Department Authorities even though the Services exported out of India are exempted from payment of any Duty? HELD THAT - The legal issue which is brought before this Court to be decided which have framed as substantial questions has been considered in the earlier decisions rendered by the Hon'ble High Courts. It appears that the earliest of the decision was in the case of REPRO INDIA LTD. VERSUS UNION OF INDIA 2007 (12) TMI 209 - BOMBAY HIGH COURT . This decision was relied on by the High Court of Himachal Pradesh in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS DRISH SHOES LTD. 2010 (5) TMI 334 - HIMACHAL PRADESH HIGH COURT . The substantial questions of law which were framed for consideration in the said decision were identical to that of the substantial questions of law which have been framed in this appeal though the language adopted may be slightly different. The Court after elaborately considering the scheme of the CCR, taking note of Rules 3, 5 and 6 held that it is clear from a bare reading of Rule 5 of the CCE that a manufacturer who exports final product which are exempt can claim refund of CENVAT. High Court of Judicature at Bombay in the case of Commissioner of Central Excise Cus., Aurangabad vs. Jolly Board Ltd. 2016 (9) TMI 1355 - BOMBAY HIGH COURT , identical issue was considered and the Court held that the assessee was eligible for refund of unutilized CENVAT credit of duty paid in terms of Rule 5 of the CCE. In the said decision, the Court has referred to the decision in the case of Drish Shoes Limited and Repro India Limited. Identical view was taken by the High Court of Rajasthan in the case of Commissioner of CGST, Rajasthan vs. Medicamen Biotech Limited 2018 (7) TMI 2069 - RAJASTHAN HIGH COURT . The Tribunal has rightly interpreted the words used in Rules 5 and 6 by pointing out that the words used in Rule 6 are exempted goods/services , whereas Rule 5 does not use these words and uses the words final product/output service - Further, the Tribunal also rightly took into consideration the effect of the notification No.8/2003-ST by pointing out that it is an exemption applicable within the territory of India and goods which are dutiable as well as exempted can be exported, so also, output services which are taxable and exempted can also be exported. Therefore, the Tribunal rightly held that the export need not necessarily confine to dutiable products or taxable services. The idea of Rule 5 was also clearly set out by stating that it is to avoid export of duty/taxes. There is no error in the order passed by the Tribunal - the appeal filed by the revenue is dismissed and the substantial questions of law are answered in favour of the assessee.

Summary

Issues:
Interpretation of Rules 5 and 6 of CENVAT Rules for refund eligibility on exempted output services.

Analysis:
The appeal involved the interpretation of Rules 5 and 6 of the CENVAT Credit Rules, 2004 regarding the refund eligibility on exempted output services provided by an export-oriented unit. The appellant contended that under the CCR, an assessee cannot avail CENVAT credit for service tax paid on input services used for exempted services. The appellant highlighted Rule 2(e) of the CCR defining exempted services and argued that taking credit for exempted services, even if provided to domestic or foreign clients, would be improper. The Tribunal's rejection of the revenue's appeal was based on the distinction between Rules 5 and 6 of the CCR, along with previous High Court decisions supporting refund eligibility.

The Court considered earlier judgments, such as Repro India Limited vs. Union of India and Commissioner of Central Excise vs. Drish Shoes Ltd., which emphasized the eligibility of manufacturers to claim CENVAT refund for exported exempt final products. The Supreme Court dismissed the appeal in Commissioner vs. Drish Shoes Ltd., affirming the entitlement to refund. Similar views were upheld in Union of India vs. Sharp Menthol India Ltd., where the Court discussed the scheme of Rules 5 and 6 of the CCR. Additional decisions, like Commissioner of Central Excise & Cus., Aurangabad vs. Jolly Board Ltd. and Commissioner of CGST, Rajasthan vs. Medicamen Biotech Limited, reinforced the eligibility for refund under Rule 5 of the CCR.

The Court found that the Tribunal correctly interpreted Rules 5 and 6, noting that Rule 6 pertains to "exempted goods/services," while Rule 5 addresses "final product/output service." The Tribunal's consideration of previous judgments and the impact of notification No.8/2003-ST on exports supported the conclusion that the export of taxable and exempted output services is permissible. Rule 5 aims to prevent the export of duty/taxes, allowing for refund eligibility. Consequently, the Court dismissed the revenue's appeal, upholding the Tribunal's decision and ruling in favor of the assessee.