2025 (7) TMI 1334 - AT - Central Excise

Recovery of refund already granted - 100% EOU - Refund of accumulated CENVAT credit lying in their account in terms of Rule 5 of the CENVAT Credit Rules 2004 - period of December 2007 to July 2008; February 2010 March 2010 - suppression of facts or not - invocation of extended period of limitation - HELD THAT - The appellants are manufacturing the finished products under 100% EOU Scheme on account of such products being exported the eligible CENVAT credit taken on inputs used in the manufacture of finished products could not be availed towards payment of Excise duty on such finished goods. The provisions of Rule 5 ibid provide for manufacturer(s) clearing the final product for export without payment of duty to claim refund of the CENVAT credit accumulated in their CENVAT records. Therefore the refund claims submitted by the appellants is eligible to be considered under Rule 5 ibid. Since the very same issue of eligibility to refund of accumulated CENVAT credit have been examined by the jurisdictional Commissioner and the Commissioner (Appeals) the Department cannot issue demand notices by invoking extended period under the grounds of mis-declaration suppression mis-statement fraud etc. It is found that the in the case of Collector of Central Excise Vs. Chemphar Drugs Liniments 1989 (2) TMI 116 - SUPREME COURT the Hon ble Supreme Court has held that there should be evidential record to prove that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise is required to saddle the manufacturer with duty liability for the extended period - In the present case all the issues discussed in the impugned order including those relating to the allegation of incorrect input-output ratio for manufacture of final products distillation process whether amounts to manufacture or not etc. have been considered earlier by the authorities below and all details were known to the department and there is no fresh ground for invocation of extended period. In view of the above facts and on the basis of the aforesaid Hon ble Supreme Court judgement it is opined that the adjudged demands invoking extended period in the impugned order do not stand the legal scrutiny and therefore it is liable to be set-aside on this ground alone. The impugned order dated 12.06.2014 in confirmation of the adjudged demands and consequent imposition of penalties on the appellants is not legally sustainable - Appeal allowed.

Summary

ISSUES:

Whether appellants, as 100% Export Oriented Unit (EOU), are eligible for refund of accumulated CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004 for specified periods.Whether the process of fractional acid distillation carried out by appellants amounts to "manufacture" under Central Excise Tariff Act, 1985, thereby justifying refund claims.Whether the Department can invoke extended period for demand and recovery of CENVAT credit on grounds of fraud, suppression, or misstatement where the issue has been previously adjudicated.Whether the demand for recovery of CENVAT credit and imposition of penalty under Section 11B and 11AC of the Central Excise Act, 1944 is legally sustainable.Whether a one-to-one correlation between inputs on which credit is taken and finished goods exported during the refund period is necessary under Rule 5 for claiming refund of accumulated CENVAT credit.

RULINGS / HOLDINGS:

The appellants are eligible for refund of accumulated CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004, as they are 100% EOUs exporting finished goods without payment of duty, and the refund claims fall within the scope of the said Rule.The process of fractional acid distillation enhances the marketability of the distilled fatty acid, and such enhancement constitutes "manufacture" under Chapter Note 9 to Chapter 38 of the Central Excise Tariff Act, 1985; therefore, refund claims based on such processes are maintainable.The Department cannot invoke the extended period for demand and recovery of duty in absence of "something positive other than mere inaction or failure" such as fraud, collusion, wilful misstatement, or suppression of facts, especially where the issue has been previously examined and adjudicated by competent authorities.The demand for recovery of CENVAT credit and imposition of penalty under Section 11B and 11AC of the Central Excise Act, 1944, confirmed in the impugned order, is not legally sustainable and is liable to be set aside.There is no requirement under Rule 5 of the CENVAT Credit Rules, 2004, to establish a one-to-one correlation between the inputs on which credit is taken and the finished goods exported during the refund period for claiming refund of accumulated credit.

RATIONALE:

The Court applied Rule 5 of the CENVAT Credit Rules, 2004, which provides for refund of accumulated CENVAT credit to manufacturers exporting goods without payment of duty, recognizing that EOUs cannot utilize input credit against excise duty on exported goods.The interpretation of "manufacture" relied on Chapter Note 9 to Chapter 38 of the Central Excise Tariff Act, 1985, which includes any treatment that renders a product marketable as manufacture; this was supported by Supreme Court precedent in Air Liquide North India Pvt. Ltd.'s case distinguishing it from S.D. Fine Chemical's case due to the presence of the deemed manufacture clause.The Court relied on the Supreme Court's decision in Collector of Central Excise Vs. Chemphar Drugs & Liniments, emphasizing that extended period demands require positive evidence of fraud, collusion, or wilful misstatement beyond mere failure or inaction, which was absent in the present case.The Tribunal's prior Final Order on identical facts was accorded significant weight, reinforcing consistency and precluding re-opening of settled issues through extended period proceedings.The Court recognized that denial of refund under Rule 5 does not negate the availability of CENVAT credit itself, which remains in the account for use in domestic clearances, thus the Department cannot deny refund on grounds that effectively seek to deny credit without following proper procedures under Rule 3 or Rule 6.