2024 (11) TMI 1180 - AT - Central Excise

Refund of unutilized CENVAT credit under Rule 5 of CCR 2004 - rejection on the ground that physical export is essential for a refund under Rule 5 ibid and the warehousing procedure did not confer any export benefit to the DTA supplier - procedural infirmities viz. the copy of ARE1 of the export warehouse has not been marked after endorsement by the customs to the range officer in charge of the factory - HELD THAT - The SCN has pointed to certain procedural defects and the fact that the appellant appears to have sold the goods domestically to the export warehouse from where the ultimate exports were made. Thus as far as the appellant is concerned the clearance remained domestic clearance only, which has not been specified as the clearances due to which the unutilised credit of the Cenvat account can be refunded under the provisions of rule 5 of CCR 2004. The OIO has further found that the appellant herein has not engaged in any manufacturing activity to claim refund under Rule 5 of CCR 2004. The impugned order has also cited the Tribunal decision in Commissioner Vs Tiger Steel Engineering 2010 (7) TMI 324 - CESTAT, MUMBAI . The facts in the said case are not identical as they relate to the case of an appellant who made supplies to a SEZ unit, who in turn used the goods as raw materials and the resultant final products were exported or cleared to DTA. In this case the fact that the goods are subsequently physically exported by the export warehouse under ARE-1 procedure as laid down under rule 20 of Central Excise Rules read with notification No.46/2001 - Central Excise (N.T.) dated 26/06/2001 and is not in dispute. In its judgment in K.P. Verghese v. Income Tax Officer, Emakulam and Another, 1981 (9) TMI 1 - SUPREME COURT , the Hon ble Apex Court held that for the purpose of interpretation of a taxing statute, the fiscal philosophy, a feel of which is necessary to gather the intent and effect of its different clauses, should be applied. It is found that in the case of a beneficial provision for the export of goods the law should be read liberally. When dealing with a complex economic policy a pragmatic and beneficial solution is to be adopted. As per Circular No. 581/18/2001 CX Dt. 29.06.2001, it has been clarified that refund under Rule 5 of the CCR, 2004 is admissible for supplies to export warehouses also. In such a situation when the ultimate export of the goods are not contested, the refund should be allowed to a DTA unit, even if the physical export was not done by the unit itself, but by the exporter who is registered under Rule 20 of C. Ex. Rules, 2002 and is availing a mechanism provided for as per Boards Circular. Moreso when Rule 5 of CCR, 2004, does not differentiate between deemed exports and physical exports and grants the benefit to any products / goods cleared for export. The impugned order is set aside and the appeals are allowed.

Summary

Issues:
Refund of unutilized CENVAT credit under Rule 5 of CCR 2004 for goods supplied to export warehouse, manufacturing activity requirement for claiming refund, procedural defects in clearance to export warehouse, applicability of Tribunal decisions, scope of show cause notice, liberal interpretation of taxing statute for export benefits.

Analysis:
The appeals involved a dispute regarding the appellant's entitlement to a refund of unutilized CENVAT credit under Rule 5 of CCR 2004 for supplying automobile bearings to an export warehouse owned by M/s. Nissan Motors India Pvt. Ltd. The appellant filed four refund claims for different quarters, which were rejected by the Original Authority and Commissioner (Appeals). The main issue was whether the physical export requirement for a refund under Rule 5 was satisfied when goods were cleared to the export warehouse and subsequently exported. The appellant argued that Circular No. 581/18/2001 CX clarified that refunds for supplies to export warehouses were admissible. They also relied on the Gujarat High Court decision regarding clearance between 100% EOUs. The appellant contended that the denial of refund based on manufacturing activity not being undertaken was beyond the scope of the show cause notice. They emphasized that their eligibility for CENVAT credit was not questioned, citing relevant case laws. Additionally, they highlighted that similar refunds for different periods had been sanctioned by the department.

The impugned order raised concerns about procedural defects in the clearance process to the export warehouse, indicating that the clearance remained domestic. It was found that the appellant did not engage in any manufacturing activity to claim a refund under Rule 5 of CCR 2004. However, the issue of manufacturing activity was not part of the show cause notice, leading to a violation of natural justice principles. Citing the Supreme Court precedent, the order set aside this part of the decision. The order also referenced a Tribunal decision regarding supplies to a SEZ unit, which was distinguished from the present case involving physical exports by the export warehouse. The judgment in K.P. Verghese v. Income Tax Officer was cited to support a liberal interpretation of taxing statutes for export benefits. It was concluded that when the ultimate export of goods was not contested, the refund should be allowed to a DTA unit, even if the physical export was carried out by the exporter registered under Rule 20 of C. Ex. Rules, 2002. The order set aside the impugned decision and allowed the appeals with consequential relief, emphasizing a pragmatic and beneficial approach in interpreting export-related provisions.