ORDER
Moheb Ali M., Member (T)
1. The issue pertains to availment of modvat credit on the strength of Bills of Entry wherein the importer availed of the benefit of Notification No. 34/97-Cus dt. 7.4.97, which exempts duties of Customs (Basic and Additional Duty) when the duty leviable on the goods is debited to DEPB scrip. Under this scheme credit is given to an exporter in the duty entitlement passbook by the DGFT authorities when he exports goods. We are not discussing the nuances of the scheme here. Suffice it to say that such credit obtained by an exporter can be used to discharge import duty liability on the goods imported. In the present case the appellant has used such credit to pay CVD on the goods imported by him. The scheme is basically a brainchild of the Commerce Ministry. In order to facilitate importers to avail of the scheme Government of India in Ministry of Finance has issued Notification No. 34/97 which exempts duties of customs leviable on the imported goods provided such duties are debited from the credit available in the pass book issued by the DGFT authorities. In case the entire duty payable cannot be debited in the passbook for want of requisite balance the importer is required to discharge the balance duty in cash. During the relevant period para 7.41 of the Import Policy prescribed that the additional Customs Duty paid in cash on inputs cleared under DEPB scheme can be adjusted as modvat credit. Thus it is very clear that what can be taken as modvat credit is what is paid by way of cash towards CVD and not what is debited in the pass book.
2. The appellant has taken credit of CVD debated in the pass book. The department’s contention is that modvat credit is not admissible when CVD is paid by way of debit in the pass book. This is because the assessee availed of the benefit of Notification No.34/97 whereby he was exempted from payment of duty of customs.
3. The appellant represented by the Ld. Advocate Shri J.C. Patel contended that the matter is covered in the case of Polyhose India Pvt. Ltd. v. CCE, Chennai [2003 (152) ELT 361(Tri.-Chennai)] wherein the Tribunal held that modvat credit can be taken of the CVD paid by debit in the pass book. This decision was later followed by a Division Bench in the case of SPIC Ltd. v. CCE, Chennai [2004 (61) RLT 671 (CESTAT-Che.)]. The Ld. Advocate argued that in view of these decisions the order of the Commissioner (Appeals) should be set aside.
4. The Ld. SDR Shri Ajay Saxena argued that the Bills of Entry clearly show that the importer availed of the benefit of notification No. 34/97-Cus. The appellant cannot take credit of duty debited in the passbook. The argument that it makes no difference whether such duty is paid by way of debit in the pass book or by cash for the purpose of availment of modvat credit is repugnant to modvat scheme and particularly so when the Import Policy itself says in para 7.41 that only cash payment towards CVD can be taken as modvat credit. He submitted that the above cited decisions have not considered that the imported availed of the benefit of Notification No. 34/97 Cus. He further submitted that the decisions of the Tribunal can be distinguished on this ground.
5. We have carefully considered the rival submissions and perused the case law cited by the Ld. Advocate. We hold that modvat scheme is a special scheme where an assessee can avail of the duty paid on the inputs as modvat credit under certain conditions. One of the conditions is that the duty should have been paid on the inputs. In the present case no such duty has been paid by availing of the benefit of Notification No. 34/97. We observe that para 7.41 of the Policy clearly says that modvat credit can be taken only when CVD is discharged by way of cash. The Tribunal in the above cited cases observed that the department was standing on technicalities when it allows MODVAT credit of duty paid in cash but does not allow what is paid by way of debit in the pass book.
6. Notification No. 34/97 exempts goods from payment of duty when the amount representing such duties is debited in the passbook. Thus a person who is not availing of the benefit of Notification 34/97 pays the duties. Such a person alone can take MODVAT credit and not the one who debits the duty in the pass book. This very issue is a subject matter of a decision by a Larger Bench of CESTAT order No. 945/04 (NBA) dt. 16.8.04 wherein the Bench held that MODVAT Credit is not to be allowed of the CVD debited to pass book while clearing the imported goods. Following the decision of the Larger Bench cited supra we reject the appeal and uphold the order of the Commissioner.