2006 (8) TMI 34 - AT - Central Excise

Central Excise Refund of input duty credit on exported goods has been rejected on ground that credit on inputs used in manufacture of exempted goods and they have exported the goods under Letter of undertaking (LUT) and not under bond, not justified

Summary

Issues:
1. Claim for refund of Cenvat credit on inputs and packing materials for manufacture of exempted goods.
2. Interpretation of Rule 6(1) and sub-rule (5) of the Cenvat Credit Rules, 2002 regarding allowance of credit on inputs used in the manufacture of exempted goods.
3. Export of finished goods under Letter of Undertaking (LUT) instead of Bond.

Analysis:
1. The appellants claimed a refund of Cenvat credit on inputs and packing materials used in manufacturing exempted goods, namely Tassels and Trimmings, which were later exported. The original authority rejected the claim citing Rule 6(1) of the Cenvat Credit Rules, 2002, which prohibits credit on inputs used in the manufacture of exempted goods.

2. The sub-rule (5) of Rule 6 provides an exception for exempted finished goods cleared for export under specific conditions. The Tribunal noted that the purpose of not allowing Cenvat credit on inputs used in manufacturing exempted goods is to prevent domestic duties from being exported to the international market, making goods less competitive. However, if goods are exported under Bond after utilizing the credit of duty paid on inputs, the question of refund does not arise. In this case, the appellants exported goods under LUT, not Bond, leading to the rejection of their claim.

3. The Tribunal, after considering the rationale behind the refund of input duty credit on exported goods, interpreted the provisions of sub-rule (5) liberally. It allowed the appeal, granting consequential benefit to the appellants as the finished goods were indeed exported without payment of duty. The Tribunal emphasized the importance of not exporting domestic duties to maintain competitiveness in the international market.

In conclusion, the Tribunal ruled in favor of the appellants, allowing the refund of Cenvat credit on inputs and packing materials used in the manufacture of exempted goods that were subsequently exported without payment of duty. The decision was based on a liberal interpretation of the relevant rules to support the competitiveness of goods in the international market.