2026 (3) TMI 908 - AT - Central Excise

Cenvat credit for CVD and SAD debited in DEPB scrips is allowable under amended policy and notifications.

Cenvat credit of Additional Customs Duty (CVD/SAD) discharged by debiting DEPB scrips is permissible where the EXIM policy amendment and subsequent ... Entitlement to take Cenvat credit of Countervailing Duty (CVD) / Special Additional Duty (SAD) levied under Section 3(5) - debit through DEPB scrips - interpretation of foreign trade policy amendment - Applicability of EXIM policy amendment to licences issued pre- and post-amendment. Cenvat credit of Additional Customs Duty debited under DEPB - HELD THAT: - The Tribunal held that Rule 3 of the Cenvat Credit Rules and the Notifications/Circulars relied upon permit availing Cenvat credit of Additional Customs Duty levied under section 3(5) of the Customs Tariff Act when such duty is debited in DEPB scrips. The earlier exclusion in Para 4.3.5 of EXIM Policy 2002-07 was deleted by amendment dated 28.01.2004, and subsequent EXIM policy provisions expressly provided that Additional Customs Duty/Excise Duty paid in cash or through debit under DEPB shall be adjustable as Cenvat credit or drawback, thereby removing any bar to credit where payment is by DEPB debit. Circular No.20/2006 was held to relate to DFCE/other notifications and not to the DEPB scheme; Circular No.18/2006 and the Notifications were read as permitting credit of CVD/SAD debited in DEPB. On this basis, the denial of credit was unsustainable. [Paras 7, 8, 11] Cenvat credit in respect of CVD/SAD debited in DEPB scrips is admissible and the denial of such credit was set aside. Applicability of EXIM policy amendment to licences issued pre- and post-amendment - HELD THAT:- The Tribunal accepted the view in precedent that the amendment to the EXIM Policy (vide the 28.01.2004 amendment and related notifications) entitles an importer to avail Cenvat credit of Additional Customs Duty debited in DEPB irrespective of whether the DEPB licence was issued under the earlier or later policy; there is no condition excluding debits in DEPB issued under the previous policy. Consequently, the departmental contention that credit is allowable only where licences were issued under the new FTP was rejected. [Paras 11] The policy amendment applies and licences issued earlier do not disentitle the importer from claiming Cenvat credit for DEPB debits. Final Conclusion: The impugned orders denying Cenvat credit in respect of CVD/SAD debited in DEPB scrips were found unsustainable; the Tribunal allowed the appeals and set aside the Commissioner (Appeals) order on the grounds that the policy amendment and applicable notifications/circulars permit such credit. Issues: Whether the appellant is entitled to take Cenvat credit of Countervailing Duty (CVD) / Special Additional Duty (SAD) levied under Section 3(5) of the Customs Tariff Act, 1975 when such duty is discharged by debiting Duty Entitlement Pass Book (DEPB) scrips instead of payment in cash.Analysis: The issue turns on the interaction between Section 3(5) of the Customs Tariff Act, 1975, Rule 3 of the Cenvat Credit Rules, 2004 and the relevant provisions of the Import Export (EXIM) Policies and notifications/circulars. Paragraph 4.3.5 of EXIM Policy 2002-07 originally restricted Cenvat/drawback where Additional Customs Duty was adjusted from DEPB but that restriction was deleted by amendment dated 28.01.2004; Para 4.3.5 of EXIM Policy 2004-09 expressly provided that Additional Customs Duty/Excise Duty paid in cash or through debit under DEPB shall be adjustable as Cenvat credit or drawback as per rules framed by the Department of Revenue. Notification No.89/2005-Cus dated 04.10.2005 similarly prescribed entitlement to avail drawback or Cenvat credit of Additional Customs Duty levied under Section 3 of the CTA against amounts debited in the DEPB. Circular No.18/2006-Cus dated 05.06.2006 clarifies that CVD debited in DEPB/other reward certificates may be allowed as Cenvat/drawback. Circular No.20/2006-Cus dated 21.07.2006 addresses DFCE/other notifications and does not apply to the DEPB scheme under Notification No.89/2005-Cus. Rule 3 of the Cenvat Credit Rules, 2004 provides for availing credit of SAD levied under Section 3(5) of CTA and does not restrict credit to duties paid only in cash. The Tribunal examined relevant precedent (including judgments of coordinate benches and High Courts) which upheld credit where duty was debited to DEPB/other reward certificates. Applying these authorities and the amended policy framework to the facts (licenses issued post amendment and notifications/circulars applicable to DEPB), the statutory and policy matrix supports allowing Cenvat credit of CVD/SAD debited in DEPB scrips.Conclusion: The appellant is entitled to take Cenvat credit of CVD/SAD levied under Section 3(5) of the Customs Tariff Act, 1975 even where such duty is discharged by debiting DEPB scrips; the impugned order denying such credit is set aside and the appeals are allowed in favour of the appellant.Ratio Decidendi: Where Additional Customs Duty (CVD/SAD) is leviable under Section 3(5) of the Customs Tariff Act, 1975 and the relevant EXIM policy and notifications permit adjustment by DEPB, Rule 3 of the Cenvat Credit Rules, 2004 and applicable notifications/circulars allow such duty debited in DEPB to be taken as Cenvat credit; circulars addressing different reward schemes do not override the policy and notification authorising credit under DEPB.