2017 (7) TMI 25 - HC - Central Excise

CENVAT credit - input services - whether the Assessee can avail of Cenvat Credit of duty, paid on input services, in view of the fact that it manufactures goods, which, though exempt from duty are otherwise exported? - Held that - It is no one s case that the goods manufactured by the Assessee were not excisable. Though the goods were excisable, the only reason, that Central Excise duty was not paid or was not payable, was, on account of the provisions of the 2006 notification. Therefore, upon executing the bond, the Assessee removed what were otherwise excisable goods without payment of duty. India is a party to the WTO regime and, therefore, it is permissible for it to neutralise duties on inputs, whether in the form of goods or services - we see no difficulty in the Assessee s case falling in the exception carved out in Rule 6(6)(v) of the 2004 Rules. The purpose, apparently, behind carving out of such exceptions appears to be, to neutralise the impact of the duties paid by the exporters, with regard to input tax, whether paid on goods or services. The objective, obviously, is not to export duties, so as to provide much needed competitive edge to Indian exporter in foreign markets. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Whether the Assessee can avail Cenvat Credit of duty paid on input services for manufacturing exempted goods that are exported.

Analysis:
1. The Tribunal ruled in favor of the Assessee, allowing Cenvat Credit based on its judgment in Jobelle V. CCE, Mumbai -I, 2006 (203) E.L.T. 627 (Tri -Mum).

2. The Assessee manufactured goods exempt from Central Excise duty under Notification No.6/2006/CE dated 01.03.2006 but paid service tax on input services. The Revenue issued a show cause notice challenging the Cenvat Credit claimed by the Assessee.

3. The Assessee argued that Rule 6(6) of the Cenvat Credit Rules, 2004, allows for an exemption to Rule 6(1) to promote exports by neutralizing duties on input services for competitively priced exports.

4. The Revenue contended that Rule 6(1) should prevail as the goods were exempt from duty even before export. The Assessee relied on Repro India Ltd. V. Union of India 2009 (235) E.L.T. 614 (Bom.) to support their position.

5. The Court analyzed Rule 6(1) and 6(6) of the 2004 Rules, noting that sub-rule (6) exempts the application of sub-rules (1), (2), (3), and (4) in cases of goods cleared for export under bond.

6. As the Assessee's goods were cleared for export under bond, falling within the exception of Rule 6(6)(v), the Court upheld the Tribunal's decision. The objective is to neutralize duties on inputs for competitive edge in foreign markets, aligning with WTO principles.

7. The Court dismissed the Revenue's appeal, ruling in favor of the Assessee and emphasizing the intent behind Rule 6(6) to support Indian exporters. No costs were awarded in the judgment.