CX - Rule 5 of CCR, 2004 applicable only to physical exports : CESTAT
By TIOL News Service
MUMBAI, FEB 22, 2018: REVENUE is in appeal against the orders of Commissioner(A) setting aside the orders of the lower authority that rejected four claims of refund sought under rule 5 of CCR, 2004.
The respondent applied for encashment of balance lying in CENVAT credit account and attributable to supply of goods to units in Special Economic Zone which are deemed to be exports under the special statute governing such zones.
The original authority denied the refund but the Commissioner(A) set aside this order. It is the contention of the respondent assessee that the Bombay High Court had stayed the CESTAT order passed in case of Tiger Steel Engineering (I) Pvt. Ltd - 2010-TIOL-1256-CESTAT-MUM wherein the Tribunal had held that such supplies were not physical exports to which alone rule 5 of CCR, 2004 was applicable.
The AR submitted that it is settled that supplies to units in Special Economic Zones are excluded from the scope of exports that are eligible for privileges under the tax laws of the country.
The Bench noted -
"…This decision of the Tribunal cited by Learned Authorized Representative would not stand them in good stead owing to the stay of operation of the said decision. Neither would the stay operate in favour of the respondent as its intent is restricted to temporary protection of the refund sanctioned to the assessee."
After extracting rule 5 of the CCR, 2004, the CESTAT inter alia observed –
+ Rule 5 is not, notwithstanding the title, merely a refund enabler. It accords sanctity to availing of CENVAT credit in transactions of goods or services that are, otherwise exempt and, in consequence, not entitled to the privileges of the scheme.
+ Impliedly, the option of refund can be availed only in circumstances of the assessee being primarily an exporter under bond or letter of undertaking, with negligible opportunity of domestic clearances, or an exporter of goods that are not liable to terminal excise duty.
+ Applying the stencil to supplies effected to units in special economic zones, it is apparent from rule 6(5) that such supplies are not exports per se but are accorded a treatment akin to that of exports in the availing of CENVAT credit. Therefore, the credit of duty/tax on input/input services utilized in supplies to special economic zones are no different from the inputs/input services used for manufacture of dutiable goods. Supplies to special economic zones are not specified to be so privileged.
Adverting to the decisions in Quality Screens - 2008-TIOL-296-CESTAT-MUM (which makes it amply clear that only physical exports would entitle the refund under rule 5 of the CCR, 2004) and Parth Trading Co - 2016-TIOL-982-CESTAT-AHM which relied upon Circular 1001/8/2015-CX dated 28.04.2015, the Bench further observed -
"…It is apparent that supplies to Special Economic Zones are not exports except when viewed through the provisions of Special Economic Zones Act, 2005. The decisions of the Tribunal cited by Learned Counsel in support of the claim of the appellants to be exporters acknowledges the entitlement to benefit of exemption from terminal duties which is accorded by section 26 of Special Economic Zones Act, 2005. That is not the subject of dispute in the present appeal."
Concluding that the impugned order had erred in allowing the application under rule 5 of CENVAT Credit Rules, 2004, the same was set aside and the appeals of the Revenue were allowed.
(See 2018-TIOL-628-CESTAT-MUM)
