REBATE of Duty paid on goods exported and imported raw materials vis-à-vis Rule 18 of Central Excise Rules, 2002.

 V. Unnikrishnan Indirect Tax Expert

       As all are aware, the new Central Excise Rules, 2001 sought to be effective from 1-3-2001 was never implemented and later the re-notified version as Central Excise (No.2) Rules,2001 only was brought into effect from 1-7-2001. The rule 18 of  Central Excise (No.2) Rules,2001 as also Central Excise Rules,2002 reads as follows:-

“18. Rebate of duty-Where any excisable goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture of such excisable goods and the rebate shall be subject to such conditions or limitations, if any, and fulfillment of such procedure, as may be specified in the notification.

   Explanation- “Export” includes goods shipped as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft”. 

 2.        It is well known that the export of excisable goods could be made under claim for rebate or under bond at all times under the CERs  (Ref :- Rule 12/12A,13 of CERs,1944 and Rules 18 and 19 of CERs, 2001 as well as 2002). So also the incentives could be claimed either as rebate, or Drawback as notified from time to time.  The incentives to exporters include the admissible rebate .of the duty paid on excisable goods used as raw materials for the finished goods exported   as per Rule 18 of CERs, 2002 read with the notification no. 21/2004-CE (NT). By the Notification no.19/04-CE-NT dt.6-9-04, the exporters could claim the rebate of duty paid on the goods exported.

   3.        The eligibility of rebate of duty paid as per Rule 18 is therefore now restricted to the duty paid on the finished goods OR the duty paid on the raw materials used only and both these rebates allowed under earlier Rule 12 of CERs,1944 is no more available. The Bombay High Court judgment dt.3-5-2006 reported in the case of Asst. Commr. Of  CE, Nagpur Vs. M/s Indorama Textiles Ltd- AIT-2006-44-HC  is also on these lines only .This judgment has clearly held that the Rule 18 & Rule 19 and the notifications issued there under has to be read and understood independently  as a fresh regulation without any consideration of the earlier provisions.

4.       The following observations in the judgment is very relevant:-

‘23. The entire approach and the procedure adopted by the revisional Authority, in our view, is wholly misconceived and completely.-inconsistent with the provisions of Rule 18 of the 2002 Rules. Similarly, reliance placed by the revisional Authority on the notifications and Rules, which are superseded and have lost force of law, for deciding entitlement of respondent no. 1 for grant of rebate, in our view, is impermissible in law and, therefore, findings recorded by the revisional Authority are wholly misconceived and completely devoid of substance.

24. Similarly, reliance placed by the revisional Authority on Rule 19 in order to consider the purport of Rule 18 of the 2002 Rules is also misconceived. We have already observed that Rule 19 operates in a situation, which is totally different and distinct than the situation in which Rule 18 is attracted and, therefore, Rule 19 cannot be equated with Rule 18 in that sense of the term.’ Again, the court observed:-

’26 The approach of the revisional Authority that introduction of new Rules was only for the purpose of simplification and they have to be read in the context of old Rules is perverse. Similarly, change of text does not affect eligibility to avail the rebate of duty on excisable goods as well as on inputs simultaneously and substitution of old Rules by the present new Central Excise Rules, 2002 is only an exercise of simplification of the Central Excise Rules is also misconceived approach of the revisional Authority. The revisional Authority, in our view, has completely ignored the fact that the Central Excise Rules, 2002 are issued by the Central Government in exercise of power conferred by Section 37 of the Central Excise Act, 1944, in supersession of the Central Excise Rules, 200l. Similarly, notifications dated 6-9-2004 are issued by the Central Government under Rule 18 of the 2002 Rules in supersession of earlier notifications dated 26-6-2001 issued by the Central Government. It is well settled that when earlier Rules or notifications are superseded by another Rules or notifications, the earlier Rules and notifications lose force of law and, therefore, are wholly irrelevant for the purpose of considering entitlement for rebate of duty paid on goods by the assessee and such entitlement necessarily will have to be considered on the basis of Rules and notifications, which are in force at the time of making claim by the assessee. In the instant case, when the claims were made by the respondent no. 1, the Central Excise Rules, 2002 were in force and notifications of 2004 issued under Rule 18 were holding the field and, therefore, entitlement for grant of rebate claimed by the assessee can only be considered on the basis of new Rules…….’

In view of  the above judgment, it is settled law that the exporters are no more eligible for both the rebate of duty paid on raw materials and the finished goods when exported as per Rule 18 of CERs,2002.    Presumably, the Revisionary Authority in the CBEC would have been guided by the following clarificatory circulars issued by the TRU in the matter.

 5.  Now let us look at what the Government said on the introduction of new rules -CERs,2001:- This is from the DO letter D.O.F.No.334/1/2001-TRU dated the 28th February,2001 from the   Joint Secretary (TRU) explaining the new rules.

‘The Central Excise Rules, 1944 have been in existence for long. It is widely perceived that quite a few of them have lost relevance or utility in the context of the changes that have since taken place in the administration of excise duties. Also, many of the rigidities and technicalities engulfing some of the rules are not compatible with the spirit of tax reforms. Quite a few rules seem to owe their birth to our succumbing to pressure to resolve trivial or peripheral issues. Some others appear to justify their existence to our weakness to remain attached to past, oblivious of the needs of present or future. It is in this context that the Central Excise Rules, 1944, are proposed to be replaced by a new set of Central Excise Rules, 2001. We have tried to keep in mind the aspects of simplicity and brevity in drafting the new rules. We have also been guided by the consideration that the rules need to act as a facilitator to the trade and industry and not be a material comprising complex and complicated reading’.

Evidently, there is no mention on the above mentioned changes sought to be implemented.

6.     When the revised new Central Excise Rules, (No.2), 2001 was introduced w.e.f 1-7-2001 vide Notn.No.30/2001CE-NT dt.21-6-2001 the CBEC had issued Circular no 359/66/2001 TRU dt.21-6-2001 explaining the provisions of new rules. It has been stated therein that the re-notified rules are in place of Central Excise Rules, 2001 which  was notified  to be  effective from 1-3-2001  vide Notn.No.9/2001CE-NT dt.1-3-2001 but never brought in to effect. As per Para 3 of the circular –“there is no basic change in the rules now notified. Only a few amendments have been made, which are reproduced below:”

Among the various rules having substantial changes from earlier provisions enlisted included rules 7,16,21,22,32 etc. and there was no mention on rule18 in the same. Thus this circular cannot be construed to be on the changes made for replacement of   Central Excise Rules, 1944.

However, when the new Central Excise Rules, 2002 was introduced there was no such clarificatory circular. The wordings of the relevant rule18 is the same in both these  set  of new rules of 2001 and 2002.

7.      It has been the consistent policy that all instructions, clarifications issued by CBEC will hold good wherever it is not specifically mentioned otherwise. (see Rule 32 of Central Excise Rules,2002 ) . There are rulings even by the

   8.        Thus, notwithstanding the above circular, it would have been only logical to conclude that the above mentioned circular dated 21-6-2001 is not referring to the provisions of CERs, 1944 and  the above mentioned substantial changes on rebate as per the new CERs,2001/2002 would hold good in the matter.   Accordingly, the exporters are no more eligible to claim both the rebate of duty paid on the raw materials and the finished goods .Similarly, the exporters would be no more eligible for the rebate of ADC paid on the imported raw materials used for the manufacture of the goods exported. Thus, they have now the option only to (i)   claim the drawback of the ADC paid, (ii) claim CENVAT on the ADC and claim the refund under CENVAT Credit Rules, 2004 when the finished goods are exported under bond as per Rule 19 of Central Excise Rules,.(iii) Claim the Cenvat of duty paid on raw materials, export the finished goods on payment of duty and claim the rebate of the same. The wordings of the relevant rules viz.  .Rule 18,&19 of Central Excise Rules,2002, Notifications issued there under and Cenvat Credit Rules,2004 make this abundantly clear.

  9.       However, it is felt that to avoid ambiguity in the matter, the aforesaid circular dt.21-6-2001 may call for a review/clarification especially in view of the Bombay HC judgment in the' Indorama case ‘cited above. In the meantime, the exporters may have to avail of the cenvat, or claim the drawback in respect of the ADC paid on the imported raw materials. For merchant exporters the option will be restricted to claim for drawback only; the other option would be to request the manufacturer   to avail Cenvat, pay duty on finished goods so as to enable to claim the rebate of the central excise duty so paid..

It would be desirable that clear cut instructions are issued in the matter-especially these are related to the incentives admissible for exported goods.

The main changes in the new rules 18 & 19 in relation to these matters were not properly highlighted; instead it was even stated that there is only simplification.

 (The Writer is working as Superintendent with Central Excise Department, Cochin. Views expressed are personal)