REFUND OF UNUTILIZED CENVAT CREDIT

[Mr. M. GOVINDARAJAN]

Rule 5 of CENVAT Credit Rules, 2004 substituted by Notification No. 4/2006-CE (NT), dated 14.3.2006 provides for the refund of CENVAT credit. It provides where any input service is used in the manufacture of final product which is cleared for export under bond or letter cleared for export or used in providing output service which is exported, the CENVAT in respect of input service so used shall be allowed to be utilized by manufacture or provider of output service towards payment of-

*  Duty of excise on any final product cleared for home consumption or for export on payment of duty; or

*  Service tax on input services

And where for any reason such adjustment is not possible the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified, the Central Government by notification.

No refund shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Drawback Rules, 1995 or claims rebate of duty under the Central Excise Rules, 2002 in respect of such duty or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.

No credit of the additional duty leviable under Sec. 3(5) of Customs Tariff Act shall be utilized for payment of service on any output service.

In getting refund is also difficult task since the Department is interpreting the provisions and most of the time rejected the refunds and the assessee is compelled to approach the Tribunals for getting redressal.

In 'Fibers and Fabrics International Private Ltd., v. Commissioner of Central Excise' 2009 (14) STR 809 (Tri.) the appeals are related to the fund claims pertains to period prior to 14.3.2006. The Tribunal held as on 10.9.2004 itself the rule provides the utilization of the input credit and output service credit and where such input service credit or input credit cannot be utilized, then the same can be as refund. So there is indeed a provision. Just because the notification has not been issued at that time, the Tribunal cannot deny the benefit provided in the Rule. The Tribunal allowed the refund.

In 'WNS Global Services (P) Ltd., V. Commissioner of Central Excise, Mumbai' - 2008 -TMI - 4049 - CESTAT, MUMBAI the Tribunal held that once refund claim even though filed after amendment satisfies every requirement of Rule 5 and the notification issued there under, the refunds cannot be rejected as there was no condition in the notification or rules that such refund would apply in respect of the exports made after 14.3.2006 only.

In 'Glittek Granites Ltd., V. Commissioner of Customs, Bangalore' - 2010 -TMI - 75938 - CESTAT, BANGALORE the appellant is an EOU engaged in the manufacture and export of Granit slabs and tiles. They have filed a refund claim for the periods January 2005 to March 2006 under Rule 5 of the CENVAT Credit Rules, 2004 for refund of untilised CENVAT credit of service tax paid under the Finance Act, 1994. The said refund claim was rejected by the adjudicating authority on the grounds that refund is admissible only from 14.3.2006 as provided under Notification dated 14.3.2006 and not provided prior to it. The Commissioner (Appeals), on appeal by the assessee, upheld the order-in-original. The Commissioner held that there was no Notification for 'input services' credit refund till 14.3.2006. Therefore in the absence of specific notification prescribing mechanism/safeguards for input services refund, it could not have been granted even though rule provided for the same. Further when Rule 5 specifically says that refund will be granted subject to the issue of a Notification, till such notification issued, the benefit cannot accrue to the appellant. However whatever the credit is accumulated after this Notification i.e., from 14.3.2006 the appellants are eligible for the same subject to the condition prescribed in the notification. Aggrieved by the order the appellants filed this present appeal before the Tribunal. The Tribunal relying on the order of the Tribunal in 'Fibres and Fabrics International Private Limited V. Commissioner of Central Excise' (supra) allowed the appeal with consequential relief.

In 'Semco Electrical Pvt. Ltd., V. Commissioner of Central Excise, Pune' - 2010 -TMI - 76184 - CESTAT, MUMBAI the appellants, a 100% EOU manufactures excisable goods. The entire production is exported out of India except of waste and scrap arising during the process of manufacture, which is cleared in DTA (on payment of central excise duty). However the quantum of the said amount is very small. As a result of which credit of service tax on input service remains unutilized. The appellants, therefore, have filed periodical refund claims for refund of service tax paid on 'input service' which are used in the manufacture and sale of exported goods in terms of Rule 5 of the Cenvat Credit Rules read with Notification No. 05/2006-CE, dated 14.3.2006. However the Department issued who cause notice proposing rejection of refund claims on the ground that services namely-

·  Rent-a-cab service;

·  Outdoor catering service;

·  Air travel booking;

·  Telephone/mobile services; and

·  Steamer agent service

do not qualify as input service as defined under Rule 2(l) of the CENVAT Credit Rules. The Tribunal relying on various case laws held that the above said services are eligible to avail CENVAT credit and allowed the appeal for refund of service tax paid on services.

In 'Sandoz Pvt. Ltd., V. Commissioner of Central Excise, Belapur' - 2010 (18) STR 360 (Tri. Mumbai) the appellants filed refund claim on 25.7.2006 under Rule 5 of CENVAT Credit Rules, 2000 being the amount of CENVAT credit availed them on input services under Rule 3 of CENVAT Credit Rules, 2002 which remained unutilized on account of the exports clearance of their finished goods effected by them. Refund claim was made under Rule 5 of the CENVAT Credit Rules, 2002/2004 read with Notification No. 5/2006-CE (NT), dated 14.3.2006. The earlier notification 11/2002-CE (NT), dated 01.03.2002 issued under Rule 5 of CENVAT Credit Rules, 2002 prescribed the safeguards, conditions and limitations for allowing refund of unutilized input credit to the manufacturers. The said Rule 5 has been substituted by a new Rule 5 vide Notification No. 4/2006-CE (NT), dated 14.3.2006 to enable refund of unutilized input/input service credit to the manufacturers and service providers and consequently Notification No.11/2002-CE (NT), dated 1.3.2002 has been superseded by Notification No. 4/2006-CE (NT), dated 14.3.2006. The Revenue contended that the appellants cannot claim refund prior to 14.3.2006. Further refund claim is required to be filed for each calendar month whereas refund claim filed by the appellants for twelve months.

The Tribunal held that even if refunds are filed before amendment and satisfies every requirement of Rule 5 and the notification issued there under the refunds cannot be rejected as there was no condition in the notification or in the rules that such refund would apply only in respect of the exports made after 14.3.2006. As regards the condition of filing of monthly refund, even where yearly claim is filed along with requisite documents as long as refund claim with requisite document is within time limit provided under Sec. 11B the same cannot be denied. However, noting that the refund claim has been filed in July, 2006 the possibility of some amount being time barred, is not ruled out. Therefore the Tribunal remanded the case back to the original authority to arrived at the quantum of refund and limitation period as per the provisions of Sec. 11B.