Input credit on goods/input service tax--procedure for claiming refund of credit by reason of exports--new rules
Cenvat Credit Rules for long provided for refund of Cenvat credit availed on inputs which could not be utilised by reason of the unit effecting exports under bond. Since the Cenvat credit on inputs and input service have been merged, the new Cenvat Credit Rules, 2004 did contain the above facility to claim refund of the Cenvat credit which accumulates in the books by reason of the finished goods or output service being exported. With effect from 14-3-2006, by Notification No. 4/2006 this Rule 5 of the Cenvat Credit Rules, 2004 has been substituted by a new Rule with a few verbal but important changes with the result:--
(a) the manufacturer of finished goods who substantially exports can claim refund of Cenvat credit on inputs which he is not able to utilise otherwise by reason of such exports.
(b) the manufacturer of goods and input service which is used in the manufacture of final products can also claim refund of the accumulated input service credit by reason of the export of the finished products.
(c) the output service provider can claim refund of input service credit or input credit of goods which have been used in providing the output service which has been exported but not able to utilise the accumulated credit.
For this purpose the procedure for claiming the refund of the accumulated input credit or the input service tax credit has been modified by Notification No. 4/2006 CE (NT) and 5/2006-CE (NT) both, dated 14-3-2006. The earlier procedure has been substantially continued but now under the new Notification, the formula to calculate the maximum refund claim every quarter has been modified and the application form has also been revised.
Refund of service tax credit in cash--due to exports
Where the service tax is getting accumulated in the books by reason of the service provider exporting the services, or by reason of the manufacturer (using the service as input service) exporting the goods. The said credit may not be fully utilised either because there is no domestic sale of goods or because no services (output services) are provided in India. The excess Cenvat credit thus lying in the books because of the exports is eligible to be refunded in cash to the assessee. For this purpose rule 5 of the Cenvat Credit Rules (as amended by Notification No. 4/2006-CE (NT), dt. 14-3-2006) provides as under:--
New Rule 5 of the Cenvat Credit Rules, 2004, reads as under:--
"5. Refund of CENVAT credit : Where any input or input service is 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, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,--
(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or
(ii) service tax on output service,
and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:
PROVIDED that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty, or claims rebate of service tax under the Export of Services Rules, 2005 in respect of such tax:
PROVIDED FURTHER that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service.
Explanation : For the purposes of this rule, the words `output service which is exported' means the output service exported in accordance with the Export of Services Rules, 2005."
Procedure for claiming refund service tax credit
For this purpose Notification No. 5/2006-CE(NT), dt. 14-3-2006, has been issued by the Government. Accordingly, refund of CENVAT credit shall be allowed in respect of--
(a) input or input service used in the manufacture of final product which is cleared for export under bond or letter of undertaking;
(b) input or input service used in providing output service which has been exported without payment of service tax,
subject to safeguards, conditions and limitations, set out in the Appendix to this notification. The Appendix provides for the following terms and conditions:--
(i) The final product or the output service is exported in accordance with the procedure laid down in the Central Excise Rules, 2002, or the Export of Services Rules, 2005, as the case may be.
(ii) The claims for such refund are submitted not more than once for any quarter in a calendar year:
PROVIDED that where,--
(a) the average export clearances of final products or the output services in value terms is fifty percent or more of the total clearances of final products or output services, as the case may be, in the preceding quarter; or
(b) the claim is filed by Export Oriented Unit, the claim for such refund may be submitted for each calendar month.
(iii) The manufacturer or provider of output service, as the case may be, submits an application in Form A (see Appendix 109.1) to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, in whose jurisdiction,--
(a) the factory from which the final products are exported is situated, along with the Shipping Bill or Bill of Export, duly certified by the officer of customs to the effect that goods have in fact been exported; or
(b) the registered premises of the service provider from which output services are exported is situated, along with a copy of the invoice and a certificate from the bank certifying realization of export proceeds.
(iv) The refund is allowed only in those circumstances where a manufacturer or provider of output service is not in a position to utilize the input credit or input service credit allowed under rule 3 of the said rules against goods exported during the quarter or month to which the claim relates (hereinafter referred to as `the given period').
(v) The refund of unutilised input service credit will be restricted to the extent of the ratio of export turnover to the total turnover for the given period to which the claim relates i.e.
Total CENVAT credit taken on input services during the given period X export turnover -- Total turnover
Illustration : If total credit taken on input services for a quarter = Rs. 100
Export turnover during the quarter = Rs. 250
Total turnover during the quarter = Rs. 500
Refund of input service credit under Rule 5 of the CENVAT Credit Rules, during the quarter E=> 100 X 250/500 i.e. Rs. 50
Explanation : For the purposes of condition No. 5,--
1. "Export turnover" shall mean the sum total of the value of final products and output services exported during the given period in respect of which the exporter claims the facility of refund under this rule.
2. "Total turnover" means the sum total of the value of,--
(a) all output services and exempted services provided, including value of services exported;
(b) all excisable and non-excisable goods cleared, including the value of goods exported;
(c) the value of bought out goods sold,
during the given period.
(vi) The application in Form A, along with the prescribed enclosures and the relevant extracts of the records maintained under the Central Excise Rules, 2002, CENVAT Credit Rules, 2004, or the Service Tax Rules, 1994,in original, are filed with the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, before the expiry of the period specified in section 11B of the Central Excise Act, 1944 (1 of 1944).
(vii) The refund of excise duty or service tax is allowed by the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be.
Procedure for claiming refund un-utilised cenvat credit by manufacturers located in North-Eastern Region - in the States of Assam, Tripura, Meghalaya etc. availing special excise exemption applicable to North-Eastern States
Manufacturers in North-Eastern States namely Assam, Tripura, Meghalaya, Mizoram, Manipur, Nagaland, Arunachal Pradesh and Sikkim have been given special exemption of excise duty in respect of various manufactured goods listed in the Schedule to Central Excise Act except a few products, namely, Tobacco and Tobacco substitutes, pan masala, plastic carry bags of less than 20 micron and mineral fuel/oil. This exemption is contained in Notification No. 20/2007-CE, dt. 26-4-2007 which is reproduced in Appendix 119.2. In terms of this notification, manufacturers will take cenvat credit on all inputs/input services and while clearing the finished goods would pay excise duty. While so paying the excise duty whatever duty is paid through PLA will be separately refunded to them. The notification explains modalities in this respect.
It is quite possible that in respect of some manufactures/products working under the above Notification No. 20/2007-CE, the duty is paid first by utilizing the cenvat credit account and even thereafter there would be accumulated Cenvat Credit. Such accumulated cenvat credit would be of no use to the manufacturers as they would not be able to utilise the same even after payment of duty on their finished products.
In order to provide for refund of such un-utilised cenvat credit balance in the hands at manufacturers in N.E. States, a special scheme and procedure has been notified vide Notification No. 25/2007-CE(NT) dt. 25-4-2007. In accordance with that notification, manufacturers in the North-Eastern States are required to follow the procedure outlined below:--
(a) the manufacturer shall file a declaration with the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture describing the finished goods proposed to be manufactured along with their rate of duty leviable and manufacturing or processing formula with particular reference to quantity or proportion in which the materials are actually used as well as the quality. The declaration shall also contain the tariff classification, rate of duty paid or payable on the materials so used, both in words and figures, in relation to the finished goods to be manufactured and cleared. However, if any particulars given in the declaration have undergone any changes, the revised declaration shall be filed by the manufacturer;
(b) the manufacturer shall submit a statement containing details namely quantity of opening balance of inputs, quantity of inputs received during the month, value thereof, duty paid or payable thereon, amount of Cenvat credit taken, quantity of inputs used during the month, quantity of final products manufactured, quantity of inputs lying in stock at the end of the month, amount of Cenvat credit utilised for payment of duty on the final product and amount of Cenvat credity lying in balance, to the Assistant Commissioner or Deputy Commissioner of Central Excise, as the case may be, by the 7th day of the next month for claiming refund;
(c) the Assistant Commissioner or Deputy Commissioner of Central Excise, as the case may be, after such verification, as may be deemed necessary, may refund the balance amount of unutilised credit, if any, at the end of the month under consideration to the manufacturer within a period of 3 months from the date of receipt of the statement; and
(d) if there is likely to be any delay in the verification, the Assistant Commissioner or Deputy Commissioner of Central Excise, as the case may be, shall refund 80% of the amount on provisional basis by the 30th day of the month following the month under consideration.
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