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High Court of Judicature at Bombay
J.P. DEVADHAR & R.S. DALVI
Union of India through the Commissioner of Central Excise
Versus
Sharp Menthol India Ltd. & Another
WRIT PETITION NO.1850 OF 2011
Decided on : 06-04-2011
rebate - Central Excise - Rule 18 of the Central Excise Rules 2002 - The judgment discusses the applicability of Rule 6(1) to 6(4) and Rule 6(6)(v) of the CENVAT Credit Rules, 2004, and the entitlement of the assessee to claim rebate of duty paid on export of peppermint oil by reversing credit of duty paid on inputs used in the manufacture of exempted menthol crystals and dutiable peppermint oil.
Fact of the Case:
The Commissioner of Central Excise filed a petition challenging the rejection of the stay application filed by the Joint Secretary to the Government of India. The dispute arose from the entitlement of the assessee to claim rebate of duty paid on export of peppermint oil by debiting the credit of duty paid on inputs used in the manufacture of final products.
Finding of the Court:
The court held that the assessee was entitled to claim rebate of duty paid on exported peppermint oil as the exempted menthol crystals and dutiable peppermint oil manufactured out of duty paid menthol were exported by the assessee. The provisions of Rule 6(1) to 6(4) of the CENVAT Credit Rules, 2004 were not applicable, and the assessee was entitled to avail the CENVAT credit of duty paid on menthol used in the manufacture of exempted menthol crystals and utilize the said credit for payment of duty on clearance of peppermint oil.
Issues: The main issue was the entitlement of the assessee to claim rebate of duty paid on export of peppermint oil by debiting the credit of duty paid on inputs used in the manufacture of final products.
Ratio Decidendi: The court held that the provisions of Rule 6(1) to 6(4) of the CENVAT Credit Rules, 2004 were not applicable, and as per Rule 5 of 2004 Rules, the assessee was entitled to avail the CENVAT credit of duty paid on menthol used in the manufacture of exempted menthol crystals and utilize the said credit for payment of duty on clearance of peppermint oil. Since the peppermint oil has been exported on payment of duty, the assessee was entitled to claim rebate of the duty paid on peppermint oil.
Final Decision: The petition filed by the Commissioner of Central Excise failed, and the assessee was entitled to the rebate of duty paid on peppermint oil. The Registry was directed to pay the rebate amount to the assessee. The court refused to stay the operation of the order.
J.P. DEVEDHAR, J.
1) This petition is filed by the Commissioner of Central Excise, Raigad to challenge the order passed by the Joint Secretary to the Government of India on 21/1/2011 whereby the stay application filed by the Commissioner of Central Excise seeking stay of the order passed by the Commissioner of Central Excise (A) on 14/9/2010 till the disposal of the Revision Application, has been rejected. By order dated 14/9/2010, the Commissioner of Central Excise (A) had held that the respondent No.1 ('the assessee' for short) is entitled to claim rebate of duty paid on export of peppermint oil by debiting the credit of duty paid on inputs used in the manufacture of final products. In the Writ Petition No.8068 of 2010 filed by the assessee seeking implementation of the order of Commissioner (A) dated 14/9/2010, this Court directed the Commissioner to deposit the rebate claim allowed by the Commissioner (A) and accordingly, the Commissioner has deposited in this Court Rs. 38,03,89,634/-towards the rebate claim.
2) Although the Commissioner is aggrieved by the order of the revisional authority in declining to stay the order of the Commissioner (A) till the revision application is heard finally, counsel on both sides urged before us that the matter be heard on merits. Accordingly, counsel on both sides have been heard extensively on the question as to whether on merits the assessee is entitled to claim rebate of duty paid on peppermint oil by adjusting the input credit availed on the inputs used in the manufacture of menthol crystals / peppermint oil.
3) The relevant facts are that the assessee is engaged in the manufacture and export of menthol crystals BP/USP and flavouring materials such as peppermint oil by using menthol (liquid) / dementholised oil as the raw materials. The assessee has its manufacturing units at several places including units at New Delhi, Rajasthan, etc.
4) Menthol is the raw material used in the manufacture of menthol crystals and peppermint oil emerges as a by-product in the manufacture of menthol crystals. This peppermint oil which emerges in the manufacture of menthol crystals contains impurities and therefore it is subjected to a process by which the impurities are removed and then cleared in the present case for export. Although the process of removing the impurities does not amount to manufacture, it is not in dispute that the peppermint oil which emerges in the process of manufacturing menthol crystals is excisable under the Central Excise Act, 1944. The assessee took credit of duty paid on menthol and utilized the said credit in paying the duty on clearance of the final products namely, menthol crystals and peppermint oil.
5) By a Notification No.4/2008-C.E. dated 1/3/2008 excise duty on menthol crystals was exempted. However, levy of excise duty on peppermint oil continued. Thus, with effect from 1/3/2008 menthol crystals were liable to be cleared without payment of duty, whereas, peppermint oil was liable to be cleared on payment of duty.
6) In the present case, it is not in dispute that even after 1/3/2008 the entire quantity of menthol crystals and peppermint oil manufactured by the assessee have been exported and domestic clearances have not been made. The assessee has cleared menthol crystals for export under bond without payment of excise duty and cleared peppermint oil for export on payment of excise duty by debiting the input credit availed on menthol used in the manufacture of final products. Since rebate of duty paid on exported goods is allowable under Rule 18 of the Central Excise Rules 2002, the assessee applied for rebate of duty paid on export of peppermint oil.
7) The Commissioner of Central Excise, New Delhi under whose jurisdiction the peppermint oil was manufactured and exported by a unit of the assessee was of the opinion that since menthol crystals manufactured from menthol was exempt from payment of duty, the credit of duty paid on menthol (input) was not av
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