2025 (4) TMI 1596 - HC - Central Excise

Rejection of rebate claim - entitlement to claim rebate of excise duty paid on exported goods while simultaneously claiming duty drawback on inputs under the Customs Central Excise Duties and Service Tax Drawback Rules 1995 - double benefit - HELD THAT - A double benefit would arise in a case where for a single incidence relief is availed more than once i.e. if relief is claimed more than once on the output side or if relief is claimed more than once on the input side. If relief is claimed only once on the output side and once on the input side then the same would not amount to a double benefit to the manufacturer/exporter. The benefits or reliefs available to the manufacturer/exporter on the input side are (i) rebate of input excise duty paid by the manufacturer/exporter to its vendors on the material purchased by it and used in the manufacture of exported goods in terms of Rule 18 of the Central Excise Rules 2002 read with Notification No.19/2004; or (ii) drawback i.e. rebate of duty or tax chargeable on any imported material or excisable material or input service used in the manufacture of exported goods under the Drawback Rules of 1995. Rule 18 of the Central Excise Rules 2002. A manufacturer/exporter is eligible to avail benefits on both the input side as well as the output side on exported goods. Doing so is not a double benefit. This is because the manufacturer/exporter is claiming reliefs against two separate tax incidences. On the input side he is claiming relief of the taxes embedded in the inputs purchased by him for use in manufacture of exported goods. On the output side he is claiming relief of output duty paid by him on the activity of manufacturing the exported goods. A double benefit would arise when a manufacturer/exporter claims multiple input side benefits or where a manufacturer/exporter claims multiple output side benefits - In the present case the Petitioner has claimed i) output rebate under Rule 18 of the Central Excise Rules of the Excise Duty paid by it on the activity of manufacturing the exported goods and ii) on the input side drawback at the All Industry Rate of 16% under the category of Cenvat facility not availed . The Petitioner correctly availed on the input side drawback at the All Industry Rate of 16% under the category of Cenvat facility not available . Hence the Petitioner has correctly availed one input side benefit and one output side benefit. In the case of Spentex Industries Ltd. 2015 (10) TMI 774 - SUPREME COURT the assessee- manufacturer used duty paid inputs for manufacture of goods which were finally exported after payment of Central Excise Duty. The rebate claims filed in respect of duty paid on inputs and on finished goods were rejected by the Department. This Court had taken a view that out of the two excise duties Rule 18 of the Central Excise Rules 2002 permits rebate only qua one of them and not on both the duties. Overruling the said decision of this Court the Hon ble Supreme Court was of the view that exporters are entitled to both input side and output side rebate under Rule 18 and not just one kind of rebate - in light of the decision of the Hon ble Supreme Court in Spentex Industries Ltd. there is no double benefit availed by the Petitioner and the Petitioner has correctly availed one benefit on the input side and one benefit on the output side. The impugned order has completely conflated input and output side benefits. Drawback is an input side benefit granting to the Petitioner rebate of the duties/taxes embedded in the inputs purchased by it. Further the Petitioner has claimed only output rebate under Rule 18 of the Central Excise Rules 2002 and has not claimed any input side rebate under the said Rule 18. There is absolutely no bar in law nor is there a double benefit for the Petitioner to claim drawback on inputs and output rebate of the excise duty paid on the exported goods. Conclusion - The Petitioner is lawfully entitled to claim rebate on the excise duty paid on exported goods under Rule 18 of the Central Excise Rules 2002 read with Notification No. 19/2004 while also claiming duty drawback on inputs under the Drawback Rules 1995 without it constituting double benefit. Petition allowed.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the Petitioner was entitled to claim rebate of excise duty paid on exported goods under Rule 18 of the Central Excise Rules, 2002, read with Notification No. 19/2004, while simultaneously claiming duty drawback on inputs under the Customs Central Excise Duties and Service Tax Drawback Rules, 1995, without amounting to double benefit.

2. Whether the Petitioner's utilization of accumulated Cenvat credit for payment of excise duty on exported goods disqualified it from claiming rebate or drawback benefits under the relevant statutory provisions and notifications.

3. The interpretation and applicability of the term "double benefit" in the context of input side and output side benefits under the excise and drawback regimes.

4. The legal effect of reversal of Cenvat credit on inputs used in exported goods and its equivalence to non-availment of such credit.

5. The applicability of the Supreme Court's ruling in Spentex Industries Ltd. regarding entitlement to both input and output rebates under Rule 18, and whether it applies when input side benefits are claimed under a different statute (Drawback Rules of 1995) than output side benefits (Central Excise Rules, 2002).

6. The interpretation of Condition 12(ii) of Notification No. 68/2007-Cus (N.T.) relating to the non-availment of Cenvat credit for claiming drawback at the higher rate applicable when Cenvat credit has not been availed.

7. Whether the Petitioner's claim of rebate on exported goods paid through accumulated Cenvat credit violates any statutory or procedural conditions.

Issue-wise Detailed Analysis:

Issue 1: Entitlement to Claim Both Input Side Drawback and Output Side Rebate Without Double Benefit

Legal Framework and Precedents: Rule 18 of the Central Excise Rules, 2002 provides for rebate of duty paid on excisable goods or on materials used in manufacture of such goods when exported, subject to conditions specified in notifications. The Drawback Rules, 1995, under Section 75 of the Customs Act, 1962, allow rebate of customs, central excise, and service tax duties on imported or excisable inputs used in manufacture of exported goods. Notification No. 68/2007 prescribes All Industry Rates of drawback with separate rates depending on whether Cenvat credit has been availed.

The Supreme Court in Spentex Industries Ltd. held that exporters are entitled to both input side and output side rebates under Rule 18 of the Central Excise Rules, 2002, overruling earlier restrictive interpretations that only one kind of rebate could be claimed.

Court's Reasoning and Application: The Court observed that input side benefits relate to relief from embedded taxes in inputs, while output side benefits relate to excise duty paid on the final product. Claiming relief once on the input side and once on the output side does not amount to double benefit since these are distinct tax incidences. The Court emphasized that the Petitioner reversed Cenvat credit on inputs used in exported goods, which is equivalent to non-availment of credit, thus enabling the Petitioner to claim drawback at the higher rate applicable when Cenvat credit is not availed.

The Court rejected the Department's argument that claiming both drawback and rebate amounts to double benefit, noting that the Department conflated input and output side benefits. The Court held that the Petitioner claimed only output rebate under Rule 18 and drawback on inputs under the Drawback Rules, 1995, which is permissible.

Competing Arguments: The Respondents contended that claiming both benefits under different statutes results in double benefit and that the Supreme Court's ruling in Spentex was not applicable as it involved rebates under the same statute. The Petitioner countered that the reliefs are for different tax incidences and that the Supreme Court's ruling applies regardless of the statutory source of the benefits.

Conclusion: The Court concluded that the Petitioner was entitled to claim both input side drawback and output side rebate without it constituting double benefit, consistent with the Supreme Court's ruling in Spentex Industries Ltd.

Issue 2: Effect of Utilization of Accumulated Cenvat Credit for Payment of Excise Duty on Exported Goods

Legal Framework: Notification No. 68/2007 distinguishes drawback rates based on whether Cenvat credit has been availed. Condition 12(ii) requires a certificate that no Cenvat credit has been availed for inputs used in the exported goods to claim drawback at the higher rate applicable when Cenvat credit is not availed.

Court's Interpretation: The Court held that the condition relates specifically to inputs used in the manufacture of the exported goods in question, not to unrelated transactions or past Cenvat credit availed on other inputs. Since the Petitioner reversed Cenvat credit on inputs used for exported goods, it effectively did not avail such credit for those goods, satisfying the condition for claiming drawback at the higher rate.

The Court rejected the Department's expansive interpretation that any Cenvat credit availed at any time disqualifies the exporter from claiming drawback at the higher rate, finding such interpretation absurd and contrary to the export scheme.

Conclusion: The Petitioner's use of accumulated Cenvat credit for payment of excise duty on exported goods did not violate Condition 12(ii) of Notification No. 68/2007, as the relevant test is non-availment of Cenvat credit on inputs used in the exported goods, which the Petitioner complied with by reversal of credit.

Issue 3: Interpretation of "Double Benefit" and Distinction Between Input and Output Side Benefits

Legal Framework: The concept of double benefit arises where relief is claimed more than once for the same tax incidence. The Court distinguished between input side benefits (relief on embedded taxes in inputs) and output side benefits (relief on excise duty on final goods), which are separate tax incidences.

Court's Reasoning: The Court emphasized that claiming relief once on the input side and once on the output side is not double benefit. Double benefit would arise if multiple input side benefits or multiple output side benefits were claimed for the same goods.

Conclusion: The Petitioner's claims do not constitute double benefit as they are for separate tax incidences, consistent with the legislative intent and judicial precedent.

Issue 4: Legal Effect of Reversal of Cenvat Credit

Precedent: The Supreme Court in CCE v. Bombay Dyeing & Mfg. Co. Ltd. held that reversal of Cenvat credit amounts to credit never having been availed.

Application: The Petitioner reversed Cenvat credit on inputs used in exported goods, thus effectively not availing credit for those inputs, entitling it to drawback at the higher rate applicable when Cenvat credit is not availed.

Issue 5: Applicability of Spentex Industries Ltd. Judgement When Input Benefits Are Claimed Under Different Statutes

Arguments: The Department argued that Spentex is inapplicable as it involved input and output rebates under the same statute (Central Excise Rules), whereas in the present case input side drawback is claimed under a different statute (Drawback Rules, 1995).

Court's Analysis: The Court disagreed with the Department's distinction, holding that the principle that exporters are entitled to both input and output benefits applies regardless of whether such benefits arise under the same or different statutes. The Court found the Madras High Court's contrary interpretation erroneous.

Issue 6: Interpretation of Condition 12(ii) of Notification No. 68/2007

Legal Text: Condition 12(ii) requires a certificate that no Cenvat credit has been availed for goods under export to claim drawback at the higher rate.

Court's Interpretation: The Court held the condition applies to inputs used in the manufacture of the exported goods in question, not to all inputs ever used or credits availed unrelated to the export transaction. The Petitioner complied by reversing Cenvat credit on inputs used in exported goods.

Issue 7: Legality of Claiming Rebate When Duty on Exported Goods Is Paid Through Cenvat Credit

Arguments: The Department contended that payment of duty through Cenvat credit disqualifies the Petitioner from claiming rebate, as the declaration of non-availment of Cenvat credit is a pre-condition for rebate under Notification No. 19/2004.

Court's Reasoning: The Court rejected this contention, reasoning that requiring payment of duty in cash to claim rebate would be commercially illogical and contrary to the purpose of Rule 18. The Court noted that exporters pay duty through accumulated Cenvat credit precisely to avoid blocking working capital, and that Rule 18 and Notification No. 19/2004 do not bar rebate claims when duty is paid through Cenvat credit.

Significant Holdings:

"A manufacturer/exporter is eligible to avail benefits on both the input side as well as the output side on exported goods. Doing so is not a double benefit. This is because the manufacturer/exporter is claiming reliefs against two separate tax incidences."

"Reversal of Credit amounts to and is equivalent to Credit never having been availed at all."

"The word 'or' occurring in Rule 18 cannot be given literal interpretation as that leads to various disastrous results... therefore, this word has to be read as 'and' as that is what was intended by the rule maker."

"There is no express or specific bar under Rule 18 of the Central Excise Rules, 2002, read with Notification No.19/2004, to deny the rebate of duty paid on the exported goods on the ground that drawback has been claimed on inputs or accumulated Cenvat credit has been utilised for payment of excise duty on the exported goods."

"The expression 'inputs used in the manufacture of the export product' in Condition 12 (i) refers to the very export transaction under consideration. It does not relate to every input used in the past by the assessee and which has not been used in the manufacture of the exported goods."

"There is absolutely no bar in law nor is there a double benefit for the Petitioner to claim drawback on inputs and output rebate of the excise duty paid on the exported goods."

"There is no requirement that output rebate under Rule 18 of the Central Excise Rules, 2002 can only be claimed when the output duty on the exported goods is paid in cash."

Final Determinations:

- The Petitioner was lawfully entitled to claim rebate on the excise duty paid on exported goods under Rule 18 of the Central Excise Rules, 2002, read with Notification No. 19/2004, while also claiming duty drawback on inputs under the Drawback Rules, 1995, without it constituting double benefit.

- The Petitioner's reversal of Cenvat credit on inputs used in exported goods effectively meant non-availment of credit, entitling it to drawback at the higher rate applicable when Cenvat credit is not availed.

- Utilization of accumulated Cenvat credit for payment of excise duty on exported goods did not disqualify the Petitioner from claiming rebate under Rule 18.

- The impugned order rejecting the Petitioner's rebate claim and ordering recovery was set aside, and the original Orders-in-Original sanctioning rebate were reinstated.

- Show cause notices issued for recovery of rebate amounts were quashed.