2008 (10) TMI 534 - AT - Central Excise

DEPB Scheme: Cenvat Credit Denied for Duty, Penalties Overturned

The Tribunal consolidated appeals regarding Cenvat credit for duty paid through the Duty Entitlement Pass Book (DEPB) scheme. The appellants claimed ... Cenvat credit - payment of Countervailing Duty through DEPB - Foreign Trade Policy - non-availability of Cenvat where additional customs duty is adjusted from DEPB - prospective effect of amendment of trade policy/notification - penalty for erroneous availment where interpretation disputedCenvat credit - payment of Countervailing Duty through DEPB - Foreign Trade Policy - non-availability of Cenvat where additional customs duty is adjusted from DEPB - Whether Cenvat credit of CVD debited through DEPB was admissible during the relevant period when the Foreign Trade Policy expressly disallowed such credit. - HELD THAT: - The Tribunal examined the Foreign Trade Policy in force during the relevant period and noted an express provision that where additional customs duty was adjusted from DEPB no benefit of Cenvat (or drawback) shall be admissible. Reliance was placed on the Larger Bench decision in Essar Steel Ltd., which interpreted the provision to deny Cenvat when duty was debited through DEPB under an exemption notification. Although later amendments and notifications permitted debit-with-credit treatment, the Tribunal held that for the period in question the Government's policy clearly precluded taking Cenvat credit of CVD debited through DEPB, and the departmental authorities were correct in confirming the duty demand. [Paras 6]Cenvat credit of CVD debited through DEPB was not admissible for the relevant period; the duty confirmations are upheld.Prospective effect of amendment of trade policy/notification - Whether the subsequent amendment to the Foreign Trade Policy and the Customs Notification operates retrospectively to allow Cenvat credit for the earlier period. - HELD THAT: - The Tribunal considered the appellants' contention that later changes and clarifications (including the Foreign Trade Policy 2004-2009 and Notification No.96/2004-Cus.) demonstrate that payment by debit in DEPB is treated as payment of CVD and that such change should be given retrospective effect. The Tribunal rejected retrospective operation, observing that allowing retrospectivity would unsettle earlier assessments and that the Government's prior policy had explicitly denied Cenvat where duty was adjusted from DEPB. The deletion of the disallowing sentence in a later policy was held to have only prospective effect. [Paras 6]The amendment/change in policy and notification is not retrospective; it does not entitle appellants to Cenvat credit for the earlier period.Penalty for erroneous availment where interpretation disputed - Whether penalties imposed for taking Cenvat credit in these cases should be sustained. - HELD THAT: - Although the duty confirmations were upheld, the Tribunal recognized that the question involved interpretation and that appellants had some favourable precedent (Polyhose India Pvt. Ltd.) supporting their stance. Given the disputed nature of the legal position at the time, the Tribunal held that imposing penalty was not warranted and accordingly set aside the penalty imposed in the Order-in-Original. The Commissioner (Appeals) had already set aside penalties in two impugned orders; the Tribunal sustained that view. [Paras 6]Penalties imposed are set aside on the ground that the matter was one of interpretation and appellants had some favourable authority.Final Conclusion: The Tribunal upholds the duty demands (no Cenvat credit of CVD debited through DEPB for the relevant period) and rejects retrospective effect of subsequent policy changes; penalties are set aside. Appeal E/569/2005 is allowed in part; appeals E/233/2006 and E/234/2006 are rejected. Issues involved: The judgment involves the interpretation of Cenvat credit rules regarding the payment of duty through the Duty Entitlement Pass Book (DEPB) scheme and the availability of Cenvat credit for the duty paid through DEPB.E/569/2005 - M/s. Binani Zinc Ltd. v. CCE:- The appellant imported goods under the DEPB scheme and debited the Countervailing Duty (CVD) from the DEPB Pass Book, claiming Cenvat credit for the same.- The Revenue contested the Cenvat credit claiming it was not permissible under the EXIM Policy during the relevant period.- The Original Authority confirmed the duty demands and penalties, while the Commissioner (Appeals) set aside the penalties but upheld the duty demand based on interpretation.- The appellant argued that debiting through DEPB constitutes payment of duty and entitles them to Cenvat credit, citing relevant case law and policy changes.E/233/2006 & E/234/2006 - M/s. Merchem Ltd. v. CCE&C (Appeals), Kochi:- Similar to the first case, the appellants imported goods under the DEPB scheme and claimed Cenvat credit for the CVD debited from the DEPB Pass Book.- The Commissioner (Appeals) set aside the penalties but confirmed the duty demands based on interpretation.- The appellant relied on case law and policy changes to support their claim for Cenvat credit.Judgment Summary:- The Tribunal consolidated the appeals due to a common question of law and facts regarding Cenvat credit for duty paid through DEPB.- The appellants argued that debiting CVD through DEPB constitutes duty payment and entitles them to Cenvat credit, citing relevant case law and policy changes.- The Larger Bench precedent indicated that Cenvat credit is not allowed when duty is debited through DEPB under an exemption notification.- The Tribunal noted the Government's policy during the relevant period disallowed Cenvat credit for duty paid through DEPB, and changes in policy did not have retrospective effect.- The Tribunal upheld duty demands but set aside penalties considering the interpretation issue and the appellant's reliance on favorable case law.- The judgment was pronounced on 15-10-2008 by the Tribunal.