DEPB debit treated as duty payment, supporting MODVAT credit entitlement for additional customs duty under the pre-2000 regime.

DEPB adjustment of additional customs duty was treated as a valid mode of duty payment for MODVAT purposes under Rule 57Q of the Central Excise Rules, 1944. The Madras HC noted that Paragraphs 7.25 and 7.41 of the Export and Import Policy, 1997-2002 permitted import against credit and did not expressly bar MODVAT credit where the duty was discharged through DEPB debit before 1 April 2000. The debit in the passbook was regarded as equivalent to duty payment, and the exemption notification was held not to change that position. On that basis, MODVAT credit was available and the Revenue's insistence on cash payment was rejected.

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Issues: Whether adjustment of additional customs duty through DEPB credit entry, instead of cash payment, entitled the assessee to MODVAT credit under Rule 57Q of the Central Excise Rules, 1944 for the relevant period.

Analysis: The DEPB Scheme under Paragraph 7.25 of the Export and Import Policy, 1997-2002 permitted import against credit and also recognised payment of additional customs duty in cash. Paragraph 7.41, read with the MODVAT provisions, did not contain any express prohibition for the period prior to 1 April 2000 against availing credit where the duty was discharged through DEPB adjustment. The Court treated the debit in the passbook as a mode of duty payment, relying on the principle that credit facility under the scheme is as good as tax paid, and held that the exemption notification did not alter that position for the purpose of MODVAT entitlement.

Conclusion: The assessee was entitled to MODVAT credit on the additional customs duty adjusted through DEPB, and the Revenue's contention that cash payment was mandatory was rejected.

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