In a recent ruling, the Chennai CESTAT observed that fund is allowable on CENVAT credit on input services utilised for manufacture of goods at nil rate of duty supplied to the SEZ.
In the instant case, the assessee approached the CESTAT raising a question that whether they are eligible to refund in respect of the CENVAT credit availed on the input services utilised for manufacture of goods at nil rate of duty supplied to the SEZ as well as exported. The appellants contended that their case falls within the ambit of exception provided under Rule 6(6) of the CENVAT Credit Rules, 2004. The goods supplied to SEZ come in par with the export of goods. Therefore it was submitted that, once the goods are not liable to tax, if otherwise attempted to be taxed denying CENVAT credit to be refunded, the cost of the goods shall undergo revision upward and will result in export of taxes which is not permitted in international trade practice.
The Revenue, on the other hand, contended that the assessee is not entitled to refund since supply to SEZ at nil rate of duty does not ipso facto makes goods exempted goods.
While allowing the appeal, the Judicial Member observed “There is an exception provided in sub rule (6) of Rule 6 of CENVAT Credit Rules, 2004 to the application of sub-rule (1) to (4) thereof. Clearances made to SEZ are not governed by the denial provision. Appellants submission is therefore certainly correct to say that any attempt to deny the refund of input credit shall make the services or goods exported costlier and will amount to export or deemed export of taxes which is not permitted in international trade practice as well as supply to SEZ domestically. Therefore, denial of refund to the appellant by the application of Rule 5 of CENVAT Credit Rules, 2004 is not reasonable, for which, the order of the authority below is set aside and appeal is allowed. The authority below granting refund shall act in accordance with law looking to the law on limitation, if any, applicable.”
Read the full text of the order below.
