MARCH 13, 2015

By Kalirajan D

ONE of the noteworthy amendments in this Budget is the meaning provided for ‘export goods' in Rule 5 of CCR, 2004 and the definition of ‘Exports' provided in Rule 18 of the CER, 2002. Pursuant to said amendments the million-dollar question for assessees who supply goods to Export Oriented Units (EOUs) is who will refund the duties suffered by them.

MoF points toMoC

Earlier, assessees who supplied goods to EOUs were claiming refund of Cenvat credit availed on inputs and input services used for manufacture of such goods and lying unutilised under Rule 5 of theCCR.Such refund claims were denied by the Central Excise Authorities on the ground that the refund of Cenvat credit under Rule 5 is allowed only for physical exports and not for deemed exports. The assessees litigated the subject matter before various forums. The Hon'ble High Court of Gujarat in the case of Shilpa Copper Wire Industries and NBM Industries - 2011-TIOL-677-HC-AHM-CX has affirmed the decisions of the Tribunal which held that the refund of accumulated Cenvat credit under Rule 5 of CCR can be allowed for supplies to EOUs also.

The Budget Notification No. 06/2015-C.E. (N.T.) dated 01 st March, 2015 has inserted a sub-rule 1A into Rule 5 of the CCR to provide meaning to the term ‘Export Goods' as any goods which are to be taken out of India to a place outside India . By virtue of this amendment all the decisions (supra) rendered on the subject matter would now be inapplicable.

Similarly, Notification No. 08/2015-C.E. (N.T.) dated 01 st March, 2015 has substituted the existing explanation to Rule 18 of CER to narrow down the meaning of the term ‘Export' provided under this rule. By virtue of this amendment the term “exports” covers only ‘Physical Exports' and shipment of goods as provision or stores for use on board a ship proceeding to foreign port or supplies to a foreign going aircraft. Therefore, now the assessees cannot claim rebate of duties and taxes paid on inputs used in manufacture of goods supplied to EOUs.

It is pertinent to note that when the eligibility of refund for export of goods to EOU was litigated before various forums, the CBEC had issued a Circular under F.No. 267/124/2007-CX 8 dated 24 th March, 2008 which inter alia clarified that refund under Rule 5 of CCR is not applicable for supplies to EOUs and remedy of refund of Terminal Excise Duty (TED) paid lies with Ministry of Commerce (MoC). Relevant portion of the circular reads as follows.

“In this connection it is clarified that this issue has been examined by the Tribunal in a recent decision in the case of CCE, Pune II Vs Quality Screens reported in 2008-TIOL-296-CESTAT-MUM and it has been held that the DTA units do not physically export the excisable goods but merely supply the goods to 100% EOU. Therefore, the provisions of Rule 5 of the CENVAT Credit Rules, 2004 are not applicable. The remedy lies in claiming refund of terminal excise duty from the Ministry of Commerce as per the Foreign Trade Policy and the provisions in the Handbook of Procedures (Vol. 1)."

It is crystal clear from the above that Ministry of Finance (MoF) has asked the assessees to approach the MoC for refund of the duties and taxes paid to their coffer.

MoC points to MoF

Those who supplied goods to EOUs claimed refund of duties (Terminal Excise Duty) paid on goods supplied to EOUs from the Director General of Foreign Trade (DGFT) as provided under Chapter 8 of the FTP. However Chapter 8.3(c) of FTP has been amended on 18 th April, 2013 to discontinue the TED refund for supplies to EOUs.

Prior to such amendment itself the DGFT had issued a policy circular No. 16 (RE-2012-2009-14) dated 15 th March2013 which inter alia clarifies that in respect of supplies to EOUs no refund of TED should be provided by RAs of DGFT/Office of Development Commissioners, because such supplies are ab initio exempted from payment of excise duty. It is also stated under the said policy circular that if any duty has been collected by any agency i.e. Ministry of Finance, by mistake, such agency collecting the tax would refund it.

Earlier to the said policy circular, the Policy Interpretation Committee in its PIC Meeting No. 02/AM13 dated 04.12.12 inter alia held that supplies to EOUs are exempt from payment of duty and provisions relating to refund of CENVAT credit are available under Excise Rules and CENVAT Rules hence refund of such credit by DGFT does not arise.

It is evident that MoC asks the assessee to approach the MoF for refund of accumulated Cenvat credit or refund of duties paid on goods supplied to EOUs.

Before parting…

From the budget amendment it is clear that MoF has shut the door and refund of neither taxes & duties paid on inputs and input services nor duties paid on final products supplied to EOUs, would be admissible. More particularly it states in the circular (supra) dated 24 th March 2008 that the assessee has to claim refund of duty from the MoC as TED Refund. Similarly, MoC vide its aforesaid policy circular and PIC meeting has asked the assessees to claim refund from MoF.

If this is the situation, taxes and duties paid on inputs though available as credit would add to the cost of products supplied to EOUs as they will remain unutilised in case substantial part of the clearances are to EOUs.This ultimately results in export of taxes and duties which has never been the intention of the government.

Who will then answer the million-dollar question? Is it MoF or MoC? Who will refund the assessee's money? Will these questions find answer in the much awaited new Foreign Trade Policy?

[The author is associated with Lakshmikumaran & Sridharan and the views expressed in this article are personal]