DEPB duty debit bars simultaneous Modvat credit, though the nominal penalty was set aside.

An importer who discharges customs duty by debit in DEPB is treated as having availed the corresponding exemption benefit under the relevant EXIM Policy and Notification No. 34/97-Cus., so Modvat credit of countervailing duty is not admissible to that extent. The cited Larger Bench view controlled the issue, and the credit claim was rejected in favour of the Revenue. The nominal penalty, however, was not justified on the facts and was set aside in favour of the assessee. Overall, the credit dispute was decided against the assessee, while penal consequences were deleted.

---

---

Issues: (i) Whether Modvat credit of countervailing duty was admissible where the importer discharged part of the customs duty by debit in DEPB; (ii) whether the nominal penalty imposed for such availment was justified.

Issue (i): Whether Modvat credit of countervailing duty was admissible where the importer discharged part of the customs duty by debit in DEPB.

Analysis: The Larger Bench had already examined the relevant EXIM Policy provisions and Notification No. 34/97-Cus. and held that payment of customs duty by debit in DEPB constituted availing the benefit of the exemption notification to that extent. On that basis, simultaneous availment of the exemption benefit and Modvat credit was not permissible. The present case was covered by that binding view.

Conclusion: The issue was decided against the assessee and in favour of the Revenue; Modvat credit was not admissible to the extent the duty was paid by debit in DEPB.

Issue (ii): Whether the nominal penalty imposed for such availment was justified.

Analysis: The dispute turned on interpretation of the exemption notification and the EXIM Policy, and the circumstances did not warrant penal consequences for the assessee.

Conclusion: The penalty was not justified and was set aside in favour of the assessee.

Final Conclusion: The appellate relief granted by the lower appellate authority was reversed on the credit issue, but the penalty was deleted, leaving the Revenue substantially successful.

Ratio Decidendi: An importer who pays customs duty through debit in DEPB is treated as having availed the corresponding exemption benefit, and Modvat credit cannot be taken simultaneously on that portion of the duty.

---