The exporters of non-dutiable products will henceforth not be able to clear their goods for export under bond or undertaking (UT1) in accordance with the latest amendment dated May 26, 2010 to notification number 42/2001-CE(NT) dated June 26, 2001 (issued under Rule 19 of the Central Excise Rules, 2002 (CER)). Consequently, they will not be able to avail Cenvat (Central Value Added Tax) Credit of the duty paid in respect of inputs used in the manufacture of such exempted goods or claim refund of such unutilised credit on account of export under bond/UT1 [through notification number 5/2006-CE(NT) dated March 14, 2006 issued under Rule 5 of the Cenvat credit Rules, 2004 (CCR)]. Thus, a very convenient option available to exporters has been taken away.
According to Rule 6 (1) of CCR, Cenvat credit shall not be allowed on such quantity of input or input service which is used in the manufacture of excisable goods which are exempt from the whole of the duty of excise leviable thereon, including goods which are chargeable to “Nil” rate of duty. According to Rule 6 (6) (v) of CCR, this restriction is not at all applicable in respect of excisable goods cleared without duty payment for exports under bond/UT1 under CER. The notification number 42/2001-CE(NT) dated June 26, 2001 allowed all excisable goods (i.e., dutiable as well as non-dutiable goods) to be exported without duty payment under bond/UT1.
So, the exporters of non-dutiable products could export their goods without duty payment under bond/UT1 and they were entitled to disregard Rule 6 (1) of CCR and take Cenvat Credit. They could claim refund of the unutilised Credit on account of exports under bond/UT1 under Rule 5 of CCR. This helped them disburden not only the duty incidence of the inputs but also the service tax on the input services that were used in or in relation to the manufacture of export goods. The excise department had objected to export of non-dutiable goods under bond/UT1 and also to taking Cenvat Credit or claiming refunds in such situations. But, the department lost its cases in the Tribunal.
In the case of Repro India Ltd. [2009 (235) ELT 0614 (Bom.)], the Bombay High Court had held that the object and purpose of Rule 6(6) of Cenvat Credit Rules, 2004 is to promote the policy of the government that the benefit of duty paid on input is available as credit in respect of certain exempted goods as well as the exempted goods exported under bond. The minor change in the wordings of Rule 6(6) of the Cenvat Credit Rules, 2004 by using the term “excisable goods” instead of exempted goods is that the term ‘exempted goods’ may not cover the dutiable goods which are exported under bond.
Therefore, in order to widen and cover both dutiable and exempted goods exported under bond, Rule 6(6) of Cenvat Credit Rules, 2004 uses the expression “excisable goods”. It is this policy of the government that has been defeated through the latest amendment.
Now, the exporters of non-dutiable products have to consider more cumbersome alternatives such as duty drawback, advance licence or other Central Excise notifications that call for more rigorous one-to-one correlation between inputs and final products. They will have no way to disburden the service tax incidence on the input services, which is discriminatory. That may be a ground to challenge the amendment.
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