Cenvat credit on CVD and SAD paid through DEPB debit remains admissible despite no cash payment.

Cenvat credit is available on additional customs duty, including CVD and SAD, when the duty is discharged by debit under DEPB scrips rather than cash payment. The Cenvat Credit Rules and the relevant Foreign Trade Policy provisions, as amended, recognise adjustment of such duty through DEPB and do not treat cash payment as a prerequisite for credit eligibility. Departmental notifications and circulars relied on to deny credit do not override this entitlement, and a circular dealing with DFCE restrictions is not applicable to DEPB. Accordingly, duty paid through DEPB debit remains creditable and denial of credit on that basis is not sustainable.

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Issues: Whether Cenvat credit was admissible on CVD and SAD paid by debiting DEPB scrips and not in cash.

Analysis: The credit scheme under Rule 3 of the Cenvat Credit Rules permitted credit of additional customs duty levied under section 3(5) of the Customs Tariff Act. After the amendment to Para 4.3.5 of the Import Export Policy 2002-07 on 28.01.2004, the earlier restriction against credit where additional customs duty was adjusted from DEPB was deleted. Para 4.3.5 of the Export and Import Policy 2004-09 also recognised that additional customs duty or excise duty paid in cash or through debit under DEPB could be adjusted as Cenvat credit or drawback. The notification and circulars relied upon by the department were held not to displace this entitlement, and the circular clarifying restrictions in the DFCE context was found inapplicable to DEPB. The cited precedents also supported the view that duty debited under DEPB remained eligible for credit.

Conclusion: Cenvat credit was admissible to the appellant on CVD and SAD paid through debit in DEPB scrips, and denial of such credit was unsustainable.

Ratio Decidendi: Where the applicable foreign trade policy and the Cenvat credit rules permit adjustment of additional customs duty through DEPB debit, credit cannot be denied merely because the duty was not paid in cash.

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