TaxTMI 
TaxTMI 
2013 (9) TMI 93
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.... and to the provision of Rule 3 of CENVAT Credit Rule, 2002?" 2. C.M.A.No.3087 of 2009 is filed at the instance of the assessee as against the order of the Customs, Excise & Service Tax Appellate Tribunal, Chennai Bench, for the period July, 1998 to September, 1998. The said appeal was admitted on the following substantial question of law:- "Whether the Customs, Excise and Service Tax Appellate Tribunal committed an error of law in upholding the denial of CENVAT credit to the appellants in respect of additional duty of customs paid by the appellant by debit to Duty Entitlement Pass book issued under paragraph 7.41 of the Export and Import policy? 3. The assessee/appellant in CMA.No.3087 of 2009 is an importer and manufacturer of various pharmaceutical drugs such as Penicillin G, Potassium First Crystals, 6 APA etc., falling Chapter 2941.10 of the Central Excise Tariff Act, 1985. As an assessee under the provisions of the Central Excise Act, the appellant availed facility of MODVAT credit for inputs and capital goods under Rule 57A and 57Q of the Central Excise Rules. The assessee was granted Duty Entitlement Passbook as per the Export and Import Policy. As per the DEPB Sch....
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.... allowed the Revenue's appeal by holding that mere debit in DEPB passbook was not sufficient for availing MODVAT credit and that the additional duty of customs should have been paid in cash to avail MODVAT credit. Aggrieved by the view taken, the assessee had preferred the above Civil Miscellaneous Appeal. 5. As far as the Revenue's appeal in CMA.No.3539 of 2005 is concerned, we find that the Commissioner of Central Excise dismissed the appeal of the assessee, holding that any credit made in the passbook for any amount of duty could not be used for MODVAT credit under the Central Excise Law. Thus, on going through the Notification relevant to the period under question, the appeal was rejected. Aggrieved by this assessee went on appeal before the Customs, Excise and Service Tax Appellate Tribunal, which allowed the appeal, following the decision of the Tribunal reported in 2003 (152) ELT 361 POLYHOSE INDIA PRIVATE LIMITED v. CCE, CHENNAI. Aggrieved by the order of the Tribunal, the Revenue is on appeal, contending that after the Larger Bench decision, the Tribunal's view following the decision reported in 2003 (152) ELT 361 POLYHOSE INDIA PRIVATE LIMITED v. CCE, CHENNAI, suffers ....
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....e the availing of any benefit of MODVAT on the adjustment of the additional customs duty under DEPB, in the absence of any express denial as is found in the 2000 Notification, the benefit of MODVAT credit on the additional duties of customs adjustment under DEPB credit entries, cannot be denied. He further pointed out that in the Foreign Trade Policy, upto 28.1.2004, the Government recognised payment in cash as well as adjustment under DEPB scheme, as available for CENVAT Credit. Thus, the sum and substance of the argument is that the credit given under the DEPB scheme is to be taken as cash payment for the purpose of availing MODVAT credit. 7. He submitted that Rule 57Q(2)(i) of the Central Excise Rules, 1944 merely stated that the credit will be allowed on the duty of excise or the additional duty leviable under Section 3 of the Customs Tariff Act, 1975, paid on the capital goods. Extending the first argument that credit taken is duty payment, he submitted that in the absence of any restrictive words in Rule 57Q of the Central Excise Rules, that this is relatable to cash payment alone, adjustment of the entries in the passbook has to be taken as payment of duty; consequently, ....
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....f to deny the relief to the assessee. 10. Countering the stand of the assessee, learned Standing Counsel appearing for the Revenue, however, supported the order of the Tribunal, particularly in the face of the Larger Bench decision in the case of ESSAR STEEL LIMITED v. CCE 2004 (173) ELT 239 on the strength of Notification No.34/97 dated 7.4.1997. Learned Standing Counsel appearing for the Revenue submitted that in the face of Clause 7.41 of the Export and Import Policy on DEPB, unless and until the assessee had complied with the requirement of the Rules, viz., payment in cash, the question of granting relief under Rule 57Q of the Central Excise Rules did not arise. On the admitted facts of the case, no exception could be taken to the order passed against the assessee. Consequently, there is no necessity to interfere with the order of the Tribunal which went against the assessee, in the light of the decision of the Larger Bench reported in 2004 (173) ELT 239 - ESSAR STEEL LIMITED v. CCE. He further submitted that the decision of the Larger Bench has not been taken on appeal so far. In the circumstances, the view thus having attained finality, the same may be accepted by this Cou....
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....duty, if any, in cash as well." 13. As is evident from the reading of the Scheme, it is an export oriented scheme. The objective of the Scheme is to neutralise the incidence of customs duty on the import content of the export product. A reading of the Scheme shows that although DEPB holder is allowed to import without payment of basic customs duty, credit is available as regards the additional customs duty payable and the Scheme further recognises that the holder has the option to pay additional customs duty, if any, in cash as well. A reading of paragraph 7.25 as extracted above thus shows that the scheme of DEPB, works on the adjustment of debit entry as against credit entry available. The credit entry includes basic customs duty as well as additional duty of customs. Thus, with the option available, Clause 7.41 provides that additional customs duty paid in cash on export made under DEPB Scheme shall be adjusted as MODVAT credit. Clause 7.41 of the Export and Import Policy with Handbook of Procedures dealt with the applicability of drawback, reads as under: "Applicability of Drawback The exports made under the DEPB Scheme shall not be entitled for drawback. The additiona....
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....e Apex Court had an occasion to consider the question as to whether the facility of credit under the Scheme is as good as tax paid. The said issue arose in the context of the modification of the Scheme on MODVAT, by the introduction of the amendment to Rule 57F (Rule 57F(4A)) of the Central Excise Rules, 1944, under which, any credit of specified duty lying unutilised as on 16.03.1995 with the manufacturers or contractors falling under Heading 87.01 motor vehicles under Heading 87.02 and 87.04 and Chassis under Heading 87.06 shall lapse and should not be allowed to be utilised for payment of duty on any excisable goods, whether cleared for home consumption or export. Thus, the amount sought to be lapsed related to inputs already used in the manufacture of the final products which were cleared before 16.03.1995. 18. It was pointed out by the Revenue therein that in the original Scheme introduced, the application of the Scheme gave rise to a situation where the nexus between input and output was lost, leading to an anamolous situation that though on the original item manufactured, a duty was liable to be paid, the ultimate product remained a duty-free product. Thus, this, accordin....
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....quivalent to payment of duty in cash? 21. This Court referred to the DEPB Scheme and pointed out to the differences between DEEC Scheme and DEPB Scheme as explained in the decision of the Supreme Court reported in 2008 (229) E.L.T. 3 COMMISSIONER OF CUSTOMS, CALCUTTA v. INDIAN RAYON & INDUSTRIES LTD. and pointed out to Circular No.26/2007 Customs dated 20.07.2007, wherein, it was specifically pointed out that goods cleared by debiting through DEPB are not to be treated as exempted, but as duty paid as per the Foreign Trade Policy, 2004-09. In considering the import of the circular, this Court pointed out that in the background of the decision of the Supreme Court referred to above, goods cleared under the DEPB Scheme could not be treated as exempted goods, but they could only be treated as duty paid goods. Therefore, the debit of any amount under the DEPB Scheme as a mode of payment of duty on the imported goods cannot be treated as exempted goods, unlike the goods under the DEEC Scheme. It may be noted that an appeal preferred against this judgment in Special Leave to Appeal (C) No.24638 to 24640/2009 was rejected by the Apex Court under order dated 09.10.2009. Extending this t....
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....issible if there is insufficient credit in the said Duty Entitlement Pass Book for debiting the duty leviable on the goods but for this exemption. (vi) Where the importer does not claim exemption from the additional duty of customs leviable under section 3 of the Customs Tariff Act, 1975 (51 of 1975), he shall be deemed not to have availed the exemption from the duty specified in the First Schedule to the said Customs Tariff Act for the purpose of calculation of the said additional duty of customs. " 22. A reading of Sub clause (iii) of Clause 2 shows that where the importer has been permitted credit input under the DEPB at the rate notified by the Government of India for the products exported and the book is produced before the Officer of Customs for debit of the duties leviable on the goods exempt from duty, the exemption from duty shall not be admissible if there is insufficient credit in the said Duty Entitlement Pass Book for debiting the duty leviable on the goods but for the exemption notification. Thus the Notification gives exemption from payment of customs duty leviable as specified under the first Schedule to the Customs Tariff Act, 1975 and the additional duty lev....