By TIOL News Service

MUMBAI, DECEMBER 04, 2018: THE appellant operated two facilities under the '100% Export Oriented Unit' scheme. Both units opted out of the scheme and upon de-bonding on 29 September 2008 and 29 January 2009 respectively, had balances of Rs.93,64,988/- and Rs.1,33,38,504/- in their CENVAT credit account arising from inputs, capital goods and input services procured by them.

It appears that the capital goods, indigenous and imported, as well as finished goods had been assessed to appropriate duties on de-bonding and it also appears that these duties had not been subsumed in the accumulated credit.

Proceedings were initiated to deny them continuity of the credit and for recovery of Rs.8,31,031/- that was utilized between 30 September 2008 and 6 December 2008 by Unit I for discharge of duty liability on clearance of 'cotton yarn'.

The CCE, Thane-I confirmed the demand and imposed penalty and interest. The adjudicating authority held that consequent upon de-bonding of the two erstwhile units under the scheme in the Foreign Trade Policy, the new units registered under CEA, 1944 would be deemed to have commenced existence afresh and, that sans entitlement to the transfer provisions, in rule 10 of CCR, 2004, or transitional provisions, in rule 11 of CCR, 2004, as well as lack of any specific provision for retention by such de-bonded units, the accumulated credit lapses on date of de-bonding.

The appellant is before the CESTAT and submits that the denial was based on narrow examination of applicability of rule 10 of CCR, 2004 and such interpretation is against the fundamental premise that export value should not to be saddled with duties in the hands of either the overseas customer or of the exporter. Reliance is placed on the decision in Tecumseh Products India Pvt. Ltd - 2015-TIOL-3066-CESTAT-BANG to justify the entitlement.

The AR justified the stand taken by the adjudicating authority and also emphasized that it was only by amendment to rule 17 of CER, 2002, through notification no. 18/2004-CE (NT) dated 6 th September 2004, that even goods removed for domestic consumption were permitted to utilize credit for discharge of duty liability; that the existence of units till de-bonding was subject to special provisions and coverage as normal unit commences only on de-bonding.

The CESTAT considered the submissions and inter alia observed -

+ Denial of CENVAT credit accumulated from duties discharged on procurements employed in exported goods would, therefore, load the burden on the exporter which defeats the very premise that is contained in the CENVAT Credit Rules, 2004.

+ The provisions of rule 10 or rule 11 will not apply to de-bonding units. It is also patently clear that a similar provision has not been explicitly incorporated in the CENVAT Credit Rules, 2004 for such de-bonding units.

+ At the same time, rule 5 of CENVAT Credit Rules, 2004 entitle exporting units, including '100% export oriented units', to claim refund of such accumulated credit at periodic intervals. Non-recourse to this privilege does not exclude them from entitlement to such.

+ It may also be worth noting that the eligibility for refund is contingent only upon inability to utilize the accumulated credit for discharge of duty liability on clearance of goods domestically. Unlike the limitation of periodic eligibility for recourse to the refund route, utilization is open-ended. This provision obviates the need for explicit provision that the adjudicating authority seeks.

+ The existence of the appellant as an assessee has not been erased, substituted or subsumed at any point in time. The provenance of the accumulated credit is not questioned. The statutory entitlement to regular monetization of the accumulated credit cannot be alienated; the alternative of utilization is not restricted by any condition.

+ Denial of such utilization would have the impact of taxing the exporter as ultimate consumer and burdening the appellant with an implied duty on exports that is not authorized by law.

Concluding that denial of carry forward of accumulated CENVAT credit upon de-bonding is not correct in law, the impugned order was set aside and the Appeals were allowed.

(See 2018-TIOL-3645-CESTAT-MUM)