Cenvat credit on duty paid through DEPB was disallowed, while later policy changes were held prospective only.

Cenvat credit was not admissible on additional customs duty adjusted through a DEPB scrip during the relevant period because the applicable Foreign Trade Policy and customs notification allowed credit only where duty was paid in cash. The Tribunal followed the Larger Bench view that debit through the DEPB exemption scheme did not create an entitlement to credit. The later amendment to the policy and notification was treated as prospective only and could not reopen earlier assessments. As the issue turned on interpretation and there was supporting contrary authority, penalty was not warranted; the duty demand was upheld and the penalty was set aside.

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Issues: Whether Cenvat credit was admissible on additional customs duty debited through the DEPB scrip during the relevant period, and whether the later amendment in the Foreign Trade Policy and Customs notification had retrospective effect.

Analysis: The applicable policy during the relevant period expressly disallowed Cenvat credit where additional customs duty was adjusted against DEPB, permitting such credit only when duty was paid in cash. The Tribunal relied on the Larger Bench view that debit through DEPB under the exemption scheme did not confer entitlement to Cenvat credit. The later policy change and amendment were treated as prospective only, and not as a basis to reopen earlier assessments. On penalty, the Tribunal noted that the issue involved interpretation and that there was a favourable view in another decision, so penalty was not warranted.

Conclusion: Cenvat credit on duty debited through DEPB was not admissible for the relevant period, and the later policy amendment did not operate retrospectively. The duty demand was upheld, while the penalty was set aside.

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