2013 (9) TMI 93 - HC - Central Excise

DEPB Credits Can Be Used for MODVAT/CENVAT: Court Rules in Favor of Assessee

The court held that duty debits in Duty Entitlement Pass Book (DEPB) for countervailing duty can be allowed as MODVAT/CENVAT credit. It ruled that DEPB ... Countervailing Duty - MODVAT credit - CVD paid through DEPB - Notification No.34/97 - Whether the duty debit made in Duty Entitlement Pass Book in respect of countervailing duty can be allowed as MODVAT/ CENVAT credit and was it not contrary to the Notification No. 34/97 and to the provision of Rule 3 of CENVAT Credit Rule, 2002 - Held that:- It is no doubt true that under the Scheme available from 1.4.2000, there is a specific prohibition that wherever the additional customs duty is adjusted from DEPB, the assessee would not be entitled to CENVAT/ Drawback. However, in the absence of any such specific prohibition for the period prior to 2000, considering the provision under Paragraph 7.25 that a holder of DEPB shall have the option to pay additional customs duty if any, in cash, the provision under Paragraph 7.41 could only be read as recognising payment in cash too available for adjustment under MODVAT Scheme. Thus, in the absence of any restrictive wording, we do not find any justification to deny the benefit of MODVAT credit available to a case covered by the credit taken under the Passbook Scheme. In the background of DEPB Scheme and the purpose of MODVAT Scheme, we hold that availing of credit is as good as tax payment for the purpose of Rule 57Q of the Central Excise Rules. Scope of Notification No.34 of 1997 dated 01.04.1997 - Held that:- in view of the limited scope of exemption, the Notification cannot be construed as a non-liability for the purpose of claiming MODVAT credit. Read in the context of the decision of the Supreme Court in EICHER MOTORS LIMITED v. UNION OF INDIA [1999 (1) TMI 34 - SUPREME COURT OF INDIA] and the policy relevant to the period in this case, in the absence of any prohibition in Clause 7.41 of the Export and Import Policy with Handbook of procedures as well as under Rule 57Q of the Central Excise Rules, the assessee will be entitled to relief under Rule 57Q of the Central Excise Rules, irrespective of whether the duty is paid in cash or through credit entry in the passbook. - Decided in favour of Assessee. Issues Involved:1. Whether the duty debit made in Duty Entitlement Pass Book (DEPB) in respect of countervailing duty can be allowed as MODVAT/CENVAT credit.2. Whether the Customs, Excise, and Service Tax Appellate Tribunal erred in denying CENVAT credit for additional duty of customs paid by debit to DEPB.Issue-wise Detailed Analysis:Issue 1: Duty Debit in DEPB and MODVAT/CENVAT CreditThe Revenue filed C.M.A.No.3539 of 2005 challenging the Customs, Excise & Service Tax Appellate Tribunal's (CESTAT) decision permitting MODVAT credit for duty debited in DEPB for the periods March 1998 to June 1998 and September 1998 to January 1999. The substantial question of law raised was whether such debit is contrary to Notification No. 34/97 Cus. dated 9.4.97 and Rule 3 of the CENVAT Credit Rule, 2002.The court examined the DEPB Scheme under the Export and Import Policy (1997-2002), which aims to neutralize the incidence of basic customs duty on the import content of export products. The scheme allows importers to clear inputs or capital goods without paying basic or additional customs duty in cash, utilizing DEPB credits instead. The Revenue argued that as per Rule 57Q(2)(i) of the Central Excise Rules, MODVAT credit is not available if additional duty is not paid in cash.The court disagreed with the Revenue's interpretation, noting that the DEPB Scheme allows the adjustment of additional customs duty liability against DEPB credits. The court emphasized that the scheme's objective is to neutralize duty incidence, and the adjustment of DEPB credits should be considered as duty payment for MODVAT credit purposes. The court referenced the Supreme Court decision in EICHER MOTORS LIMITED v. UNION OF INDIA, which held that the facility of credit is as good as tax paid.Issue 2: Tribunal's Denial of CENVAT CreditThe assessee filed C.M.A.No.3087 of 2009 against the CESTAT's decision denying CENVAT credit for additional duty of customs paid by debit to DEPB for the period July 1998 to September 1998. The court examined the DEPB Scheme and Rule 57Q of the Central Excise Rules, which allows credit for duty paid on capital goods. The assessee argued that DEPB credits should be treated as cash payments for MODVAT credit eligibility.The court analyzed the relevant Export and Import Policy provisions, particularly Paragraphs 7.25 and 7.41, which allow DEPB holders to pay additional customs duty in cash or through DEPB credits. The court found no express prohibition against using DEPB credits for MODVAT credit under the policy or Rule 57Q. The court noted that subsequent amendments explicitly prohibiting such credits from 1.4.2000 did not apply retroactively to the periods in question.The court referenced the Gujarat High Court decision in GUJARAT AMBUJA EXPORTS LTD v. GOVERNMENT OF INDIA and the Supreme Court decision in COMMISSIONER OF CUSTOMS, CALCUTTA v. INDIAN RAYON & INDUSTRIES LTD., which supported the view that DEPB credits are equivalent to cash payments for duty purposes.Conclusion:The court concluded that the Tribunal's denial of MODVAT/CENVAT credit based on DEPB credits was incorrect. It held that the DEPB Scheme's objective and the absence of any express prohibition in the relevant rules and policies justified treating DEPB credits as equivalent to cash payments for MODVAT credit purposes. Consequently, the court set aside the Tribunal's order in C.M.A.No.3087 of 2009, allowing the assessee's appeal, and dismissed the Revenue's appeal in C.M.A.No.3539 of 2005, confirming the Tribunal's order favoring the assessee.