Manufacturing is a process which includes conversion of a product into another by processing and assembling. Any person who conducts any such activities is a manufacturer and hence would be liable to pay duty. There various different types of refunds like that in case of exports of services, in case of export of goods, for SEZ Units or developers, refund under Rule 5 of CENVAT Credit Rules, 2004 and refund of excess service tax paid. A manufacturer can file claim for refund with regard to finished goods in accordance with Rule 5 of CENVAT Credit Rules, 2004. In the present paper, we are going to deal with refund under Rule 5 of CENVAT Credit Rules, 2004 as a manufacturer and related provisions.
Central Excise and Customs (CBEC) issued a draft circular in the month of November 2006, seeking response from the public with regard to taking deterrent measures regarding several issues including issue of excise invoice without delivery of goods (by a manufacturer or a dealer) and claiming of refund or rebate based on invoices which are not genuine. The concept as envisaged in the draft has been inserted in the Central Excise Rules, 2002 by three notifications:- Notification no. 30/2006, 31/2006 and 32/2006 CE(NT) all dated 30-12-2006.
According to New Rule 12CC, government may specify restrictions on a manufacturer, first stage and second stage dealer or an exporter, in the public interest, by a notification in the Official Gazette, in order to prevent evasion of, and default in payment of, excise duty. According to New Rule 12AA of CENVAT Credit Rules, 2004, government may, by a notification in the Official Gazette, introduce certain measures including restrictions on a manufacturer, first stage and second stage dealer or exporter, in order to prevent the misuse of provisions of CENVAT Credit.
However, withdrawn of facility or imposition of restriction shall be made only in case where the CENVAT Credit alleged to be involved in the offences is more than 10 Lakhs.
Moreover, the CENVAT Credit for the manufacturers and service providers is normally 12 %, which is available on the additional duty of customs. However, special additional duty of 4 % is only available to the manufacturer. No credit of the additional duty leviable under Section 3 (5) of the Customs Tariff Act shall be utilized for payment of service tax on any input service.
How can manufacturer file refund claim?
The manufacturer of output service can claim refund under Rule 5 of CENVAT Credit Rules, 2004 by submitting an application in Form A to the Assistant/ Deputy Commissioner of Central Excise alongwith the necessary annexures, as the case may be. The application shall be duly signed by the claimant and shall be filed before expiry of the period as specified under the Central Excise Act, 1944.
Limitations on the manufacturer
The condition no. 2 of the Appendix to the Notification No. 05/2006 states that such refund claims should not be submitted more than once for any quarter in a calendar year and condition no. 4 states that refund is allowed only in such circumstances where a manufacturer or provider of output service is not in a position to utilize the input service or input credit allowed under Rule 3 of the said rules against goods exported during the month or quarter to which claim relates.
There has been a number of debates as to when can a manufacturer file a refund claim under the above-mentioned Rule. In the case of Apotex Research Pvt. Ltd. & Others v. CCE, wherein 56 Appeals were heard together and the Bangalore Bench of the CESTAT passed an interim order on 16 Common/ Legal Issues pertaining to refund of Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 for exporters, as mentioned here under:
- Place of removal is taken as port/airport/land customs station and all the services utilized up to the stage would become eligible for refund under Rule 5.
- CENVAT credit can be refunded under Rule 5 when there was no notification prior to 14.03.2006.
- After 10.09.2004 CENVAT credit cannot be denied on the ground that the unit availing the credit is a 100% EOU and hence refund has to be given.
- Board has issued a clarification vide Circular No. 111/5/2009-ST dated 24.02.2009. In this circular in paragraph 3 the Board has accepted that for category (iii) services (As per Export of Services Rules), it is possible that export of service may take place even when all the relevant activities take place in India so long as benefits of these services accrue outside India.
- It is nobody’s case that there is no need to establish the relation between the input services and the business of manufacture.
- In certain cases, the lower authorities have taken a view that production of foreign inward remittance certificate by the claimant to claim refund is not sufficient. A certificate from the bank certifying that the amount in the invoice has been received specifically with reference to the invoice has to be made available. What is required to be established by an exporter is that in respect of Invoices raised by him, consideration in foreign currency Technical Guide on CENVAT Credit 74 has been received.
- Clearance to a 100% EOU can be considered as export as this issue is no longer res integra and is covered by the decision in the case of NBM Industries & Shilpa Copper Wire Industries.
- Proof of payment of service tax by the service provider is not required.
- Rule 9(2) of CENVAT Credit Rules provides that if the document does not contain all the particulars but contains details of duty or service tax payable, description of goods, etc, CENVAT credit may be allowed.
- Decisions in cases where credit has been denied or refund has been denied on the ground that export is not made under Bond or Letter of Undertaking cannot be sustained.
- Provisions of Rule 3 of CENVAT Credit Rules, 2004 show that credit can be taken by a manufacturer or a provider of output service and there is no requirement of registration under Rule 3 of the CCR, 2004 at all.
- The admissibility of CENVAT credit is not relevant for the purpose of determination whether refund is admissible under Rule 5 of CCR or not.
- Regarding relevant date for filing refund claim, it held that Provisions of Section 11B of Central Excise Act, 1944 for the purpose of limitation would be applicable.
- The relevant date should be the date on which the consideration has been received where the claimant is service provider and consideration Refund of CENVAT Credit 75 paid where the claimant is service receiver.
In Bala Handlooms Exports Co. Ltd. v. CCE, refund of accumulated unutilized CENVAT credit was allowed. It was held that: “Rules provides for refund of CENVAT credit taken on inputs where for any reason the same could not be utilized for clearing final products for home consumption or export products on payment of duty. The Tribunal concluded that appellants who were manufacturers, were eligible for refund of accumulated CENVAT Credit in terms of Rule 5 of the CENVAT Credit Rules.”
In the case where assessee who was also a manufacturer had stopped manufacturing and had also surrendered registration, utilization of CENVAT Credit is not possible.
Hence, it can be seen that refund can be claimed only when the claimant is a manufacturer and not otherwise. Moreover, even when conditions or procedure is not prescribed, refunds are allowed as prescribed by Rule 5 of CENVAT Credit Rules, 2004 following the legislative intention.
SurendraGupta,Deterrent Measures in case of Misuse of Cenvat Credit and Evasion of Central Excise, December 31, 2006 available at https://www.taxmanagementi ndi a.com/pr i nt/pr i nt_Ar ti cl e.asp?ID=58 (as accessed on March 8, 2016).
 Central Excise Rules, 2002.
 Notification no. 32/2006.
 Madhukar N Hiregange, New Tax Audit Indirect Tax Compliance, August 20, 2014 available on https://www.taxmanagementi ndi a.com/pr i nt/pr i nt_Article. asp?ID=5789 (as accessed on March 10,2016).
 Mr. M. GOVINDARAJAN, REFUND OF CENVAT CREDIT, December 1, 2008 available on https://www.taxmanagementi ndi a.com/pr i nt/pr i nt_Ar ti cl e.asp?ID=235 (as accessed on March 10, 2016).
 Refund under Rule 5 of CENVAT Credit Rules, 2004 – NOTIFICATION NO 27/2012- CX., (N.T.), June 21, 2012, available at http://www.suvidhagroup.in/pdf_files/5_.pdf (as accessed on March 7, 2016).
 Section 11B, Central Excise Act, 1944 (1 of 1944).
 Dr. Sanjiv Agarwal, REFUND CLAIM UNDER RULE 5 OF CENVAT CREDIT RULES, October 22, 2009 available on https://www.taxmanagementi ndi a.com/pr i nt/pr i nt_Ar ti cl e.asp?ID=535 (as accessed on March 10, 2016).
 Technical Guide on CENVAT Credit, The Institute of Chartered Accountants of India, New Delhi, available at http://idtc.icai.org/download/CENVAT-Credit.pdf (as accessed on February 14, 2016).
 Commissioner of Central Excise and Customs v. NBM Industries: 2012 (276) ELT 9 (Guj.).
 Commissioner of Central Excise, Surat v. Shilpa Copper Wire Industries: 2008 (226) ELT 228 (Ahm).
 Chennai 2007 -TMI – 34820 – (CESTAT, CHENNAI).
 Commissioner of Central Excise v. Nag Polymers (P) Ltd., 2008TMI31681CESTAT, New Delhi.
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