Deemed Export is eligible for refund of accumulated and unutilised cenvat credit under Rule 5 of Cenvat credit Rules 2004

[Vijay Chitte]

According to rule 5 of the Cenvat credit Rules 2004, state that where any input or input services used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export or used in providing output service which is exported. As per Notification 05/2006-CE (NT) dated 14.03.2006 has specified procedure / conditions for claiming unutilised cenvat credit as allowed under rule 5 of the Cenvat credit Rules 2004.

These provisions did not clarify whether such refunds will be available also to Deemed Export made to Export Oriented Units, Free Trade Zone etc, such type refunds are rejected by the Central Excise Department, the department relied only on the definition of export under the Customs Act, 1962, which define export to mean, “taking out of India to a place outside India”.

The term export is not defined under the CENVAT Rules and the Central Excise Act, 1944, hence the meaning of the term export should be understood as defined under the SEZ Act, 2005 (“the SEZ Act‟).

As per rule 2(m) of the Special Economics Zone Act, 2005 refund is allowed to Supply made by DTA to SEZ unit including goods or services, within the ambit of “Export”, the term “export” has been defined to include not only the physical export of goods and services outside India, but also supply of goods and services from the domestic tariff area (“DTA‟) to a unit / developer in the SEZ and therefore, the DTA supplier is entitled to refund in case where goods are supplied to SEZ units.

Board's Circular No. 29/06-Cus., dated 27-12-2006 read with Instructions No. 6/06, dated 3-8-2006 issued by the Ministry of Commerce and Industry to the Chief Commissioners of Customs and Central Excise would strongly support that supply of goods to SEZ units should be considered to be in the nature of export for purposes of rule 5 of the Cenvat Credit Rules, 2004.

Circular No. 6/2010, dated 19-3-2010 issued by the CBEC to all Chief Commissioners of Customs and Central Excise clarified that a DTA supplier could claim rebate under rule 18 of the Central Excise Rules, 2002 in respect of supplies to SEZ unit in terms of the earlier Circular No. 29/06-Cus. If, for purposes of rules 18 and 19 of the Central Excise Rules, 2002, the supplies from a DTA unit to SEZ unit can be deemed to be 'exports', they should be considered likewise for purposes of rule 5 of the Cenvat Credit Rules, 2004;

In recent judgment of Gujarat High Court in Commr. of Central Excise Vs. NBM Industries [2011 -TMI - 207406 - GUJARAT HIGH COURT] in this decision this view has been confirmed that earlier Tribunal was right in allowing refund of Cenvat credit availed on inputs used in the manufacture of goods cleared by DTA units to a 100% EOU even in absence of enabling provision that consider deemed export as physical export in terms of section 2(m), of SEZ Act, 2005 read with Rule 30 of the SEZ Rules, 2006.

This has been also held in Commr. Of Central Excise Vs. Shilpa Copper Wire Industries [2010-TMI-205858 – Gujarat High Court] in this decision the High Court had held that clearance made by one 100% EOU to another 100% EOU which is deemed export is to be treated as physical export for the purpose of entitling refund of unutilized Cenvat credit contemplated under the provisions of Rule 5 of the Cenvat credit Rules 2004,

The Larger bench decision in case of Amitex Silk Mills V.s CCE Surat-I – 2005 -TMI - 54619 - CESTAT, PRINCIPAL BENCH, NEW DELHI held that deemed export has all the elements of export and should be treated at par with export. He also referred to the Board's Circular No. 220/54/96-CX dated 04.06.96.

The following decisions of the Tribunal's are also support to allowed the refund under rule 5 of Cenvat credit in case of deemed export.

M/s. Refron Valves Ltd. Vs. CCE Vadodara [2011-TMI- 205840– CESTAT, Ahmedabad]

Commr. Of C. Ex., Ahmedabad Vs. Rangdhara Polymers [2010-TMI – 204363 – CESTAT, Ahmedabad]

Commr. Of C. Ex., Pune-II Vs. Quality Screens [2008-TMI – 4549 -CESTAT, Mumbai]

Manoj Handlooms Vs. Commissioners of C. Excise, Chennai [2008-TMI – 34480 – CESTAT, Chennai]

We hope that department take lenient view to sanction the refund claim in case of deemed export addressing the above High Court and Tribunals judgments and not contested further, either the department can uses its power to bring a retrospective amendments in Rule 5 of the Cenvat credit Rules 2004.