February 15, 2011

The judgments of GTN Engineering (I) Ltd: A Renaissance for time barred refund claims!

By Nithyananda Shetty And Divya Pahwa

NOTIFICATION No. 5/2006-CE (NT) dated 14.03.2006 (Notification 5/2006) issued under Rule 5 of the CENVAT Credit Rules, 2004 (CCR), provides for refund of CENVAT credit in respect of input or input service used in or in relation to manufacture of final product which is cleared for export under bond or letter of undertaking or input or input service used for providing output service which has been exported without payment of service tax.

The Notification is based upon the fundamental principle that taxes are not exported directly or otherwise and seeks to achieve tax neutralization by providing the refund of accumulated CENVAT credit subject to the conditions stipulated therein. It is therefore desirable that a liberal interpretation to the provisions of this Notification is given to remove legal or procedural impediments faced by the exporters. This is manifested by the Circular No. 120/01/2010-ST. dated 19.01.2010 which was issued to remove the procedural impediments faced by the exporters and expedite the exporters' refund claims.

In last year's Union Budget, an amendment was made in the Notification 5/2006 by Notification No. 7/2010-CE (NT) dated 27.02.2010, wherein interalia, the wordings “input or input service used in the manufacture of final product” and “input or input service used in providing output service” were amended to read as “input or input service used in or in relation to the manufacture of final product” and “input or input service used for providing output service”. This was specifically done to harmonize the wordings in the Notification 5/2006 with the definition of input and input service appearing in CCR and prevent the tax authorities to use different yardsticks for measuring the nexus for the CENVAT credit taken by the assessee under CCR and the refund claimed for the same under Notification 5/2006.

However, what has always been a bone of contention is the time limit for filing the refund claim of accumulated CENVAT under Notification 5/2006. Clause 6 of the Notification 5/2006 makes reference to filing of the refund claim with the relevant jurisdictional authority before the expiry of the period specified in section 11B of the Central Excise Act, 1944 (CEA).

Section 11B of CEA provides for refund of any duty and interest paid before the expiry of one year from the relevant date which is defined in explanation (B) to section 11B of CEA.

The Courts have time and again rejected the refund claim on the ground of the same being time barred in view of the applicability of section 11B to the Notification 5/2006. In the case of Sandoz Pvt. Ltd. vs. Commissioner of Central Excise, Belapur - 2008-TIOL-1197-CESTAT-MUM the Tribunal remanded the case back to the adjudicating authority for the limited purpose of determining the amount of the refund claim that may be time barred after observing that the refund under Notification 5/2006 cannot be denied as long as the refund claim is filed with the requisite documents within the time limit provided under section 11B of CEA.

In the case of Commissioner of C. Ex., Pune-II vs. Gadre Marine Export Pvt. Ltd. - 2009-TIOL-1137-CESTAT-MUM, the Tribunal observed that “A perusal of the Explanation to sub-section (5) of Section 11B of the Central Excise Act shows that, on the facts of the present case, the relevant date for the purpose of computation of period of limitation is the date on which the ship leaves India. The SDR has not been able to show that the relevant show-cause notices pleaded limitation against the relevant refund claims with reference to the above date. The learned Counsel has submitted that all the refund claims were filed within one year from the last date of the respective quarters. In the nature of this dispute, I am of the view that the original authority will have to carefully address the limitation issue with reference, and proper application of mind, to the provisions of Section 11B ibid.”

Likewise there are several other plethora of instances where the refund claims of the exporters under Notification 5/2006 have been rejected on the grounds of limitation or remanded back to the adjudicating authority to examine the amount of the refund claim that is time barred.

In addition, the possibility of certain exporters not filing their refund claim in cases where they have missed the time limit for filing the refund claim as prescribed under Notification 5/2006 cannot be ruled out.

The judgment of GTN Engineering (I) Ltd vs. CCE, Coimbatore - 2011-TIOL-149-CESTAT-MAD - may compel us to think as to whether the time limit of one year prescribed in Section 11B of CEA which has been referred to in Notification 5/2006 is at all applicable to the cases of refund of CENVAT credit claimed by the exporters under the said notification!

In this case the original adjudicating authority denied the refund claims filed by the Appellant under Notification 5/2006 on the ground of the same being time barred which was upheld by the commissioner (Appeals). The appellant preferred an appeal before the Tribunal. The Tribunal has observed that the reference of section 11B which prescribes the time frame to file a refund claim under Notification 5/2006, refers to the refund of the duty paid. In the present case, the Appellants have claimed refund of CENVAT credit under Rule 5 and it is to be noticed that the credit accumulated in CENVAT credit account is not duty paid by the exporter. Only when the credit is debited towards duty payable, it will amount to payment of duty. The Appellants are claiming refund of CENVAT credit already taken by them which had accumulated and could not be utilized due to exports as specifically provided under Rule 5 to CCR.

The judgment of GTN also makes reference to the case of Swagat Synthethics vs. CCE, Surat [2007 (220) ELT 949] which was upheld by the by the High Court of Gujarat vide the decision dated 14.07.2008 reported in 2008-TIOL-666-HC-AHM-CX, wherein it was held that CENVAT credit lying in RG-23A account accumulated arising out of export is akin to credit in the PLA and the time limit shall not apply.

Reference can be made to the case of STI India Ltd. vs. Commissioner of Customs & Central Excise., Indore, [2009 (236) ELT 248 (MP)], wherein the Appellant had claimed refund of the Modvat credit under Notification No. 85/87-CE dated 1.03.1987 (Notification 85/87) under Rule 57F of erstwhile Central Excise Rules, 1944 and was before the Tribunal contesting rejection of the refund claim by the lower authorities as being time barred.

The Notification 85/87 provided for refund of credit in respect of inputs used in or in relation to the manufacture of final products which were cleared for export under bond subject to the conditions stated therein. The Notification 85/87 also made reference to the filing of the refund claim before the expiry of the period specified in section 11B of the CEA.

However, inspite of the reference to the time limitation as per section 11B of CEA specified in the Notification 85/87, the Tribunal made the following observation:

“6. It is not in dispute that claim for the quarter October, 98 to December 98 was made on 27-7-99 by invoking Clause 6 of Appendix to notification issued under Rule 57F. In our view, the strict law of limitation provided in Section 11B of the Central Excise Act would not apply to the claim of refund claimed pursuant to notification issued under Rule 57F. It is in our opinion procedural in nature rather than mandatory (see AIR 1992 SC 152). In this case, what was required to be seen by the authorities was whether appellant had submitted along with application all necessary proof regarding exportation of goods and relevant extracts of form R.G. 23-A or deemed credit register maintained in respect of textile fabrics in original as the case may be as provided in Clause 6 of Appendix to notification issued under Rule 57F. Once the appellant (Assessee) was able to satisfy these requirements to the satisfaction of authority concern then they were entitled to claim the refund of duty paid on inputs.

7. In our opinion, merely because the refund application was not filed strictly within 6 months before expiry of period specified in Clause 6 of Appendix read with Section 11B ibid but was filed late by 27 days could not have been made the sole ground for the rejection of application as barred by limitation. Infact, the claim in question did not fall strictly within the forecorners of Section 11B but it essentially fell within the forecorners of Clause 6 of Appendix to notification issued under Rule 57F.

8. In view of foregoing discussion, we are unable to concur with the view taken by authorities below when they rejected the refund application of appellant only on the ground of limitation.

9. Accordingly, the appeal succeeds and is allowed. Impugned orders are set aside. As a consequence, the refund application made by appellant dated 27-7-99 is held to be within time. The authorities concern who were seized of the application of appellant under consideration are hereby directed to examine the claim of appellant made in the application on merits, keeping in view the requirement of relevant notifications under consideration and other relevant provisions of Act/Rules and then pass appropriate orders on the claim of appellant.”

On applying the same analogy to Notification 5/2006 which provides for refund of unutilized accumulated CENVAT credit to exporters, can we say that the strict law of limitation provided in section 11B of CEA would not apply here? If all the other conditions, proofs and documentation are complete, then application filed beyond the period prescribed by section 11B can be entertained and allowed by the Courts and shall not be rejected as time barred. This is the principle that seem to emerge from the case of GTN discussed above.

Now what remains to be seen is whether the case of GTN becomes a judicial precedent and is followed by other Courts as well.

As a parting note, the authors would like to ask the readers the following questions:

++ Given that the principle in GTN is accepted as a judicial precedent, can an exporter go back to any number of years (obviously post Notification 5/2006) to file his refund claims?

++ Shouldn't the government bring about an amendment in Notification 5/2006 so as to do away with the condition of the refund claim being filed before the expiry of the period specified in 11B of CEA?

It is commendable that some Courts/Tribunals in India do not resort to mechanical application of the provisions but apply reason to come out with a logical interpretation!

(The authors are Senior Manager and Assistant Manager, respectively, in Deloitte Touche Tohmatsu India Private Ltd.)