Modvat credit on CVD debited to DEPB pass book rejected because exemption debit was not cash duty payment.

Modvat credit was denied on additional customs duty (CVD) debited to the DEPB pass book under Notification No. 34/97-Cus because the debit operated as exemption rather than cash payment of duty. The Import Policy allowed credit only where CVD was paid in cash, and the governing condition remained actual duty payment on the inputs. Following the later Larger Bench view, the tribunal treated pass-book debit under the exemption scheme as insufficient to satisfy that requirement, so credit was not admissible.

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Issues: Whether Modvat credit was admissible on additional customs duty (CVD) discharged by debit in the DEPB pass book under Notification No. 34/97-Cus.

Analysis: The governing scheme permitted exemption from customs duty when the duty liability was debited to the pass book, and the Import Policy stipulated that Modvat credit could be taken only where the CVD was paid in cash. The governing condition was payment of duty on the inputs, and debit in the pass book under the exemption notification was treated as availing the exemption rather than payment of duty in cash. The later Larger Bench view was followed to hold that credit could not be allowed on such debit entries.

Conclusion: Modvat credit on CVD debited to the pass book was not admissible, and the assessee's claim failed.

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