IN THE HIGH COURT OF KERALA AT ERNAKULAM
C.E.Appeal.No. 15 of 2007(I)
1. WESTERN INDIA COTTONS LTD., REPRESENTED
... Petitioner
Vs
1. COMMISSIONER OF CENTRAL EXCISE,
... Respondent
For Petitioner :SRI.C.S.GOPALAKRISHNAN NAIR
For Respondent :SRI.P.PARAMESWARAN NAIR,ASST.SOLICITOR
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice K.SURENDRA MOHAN
Dated :20/03/2009
O R D E R
C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ.
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C.E. Appeal Nos: 15, 16/07 & 8/2008
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Dated this the 20th March, 2009.
JUDGMENT
RAMACHANDRAN NAIR, J.
The connected appeals arise from orders of the Customs
Excise and Service Tax Appellate Tribunal holding that appellants
are not entitled to claim cenvat credit on additional customs duty
payable under Section 3 of the Customs Tariff Act that was debited
in the pass book issued under the DEPB Scheme.
2. We have heard senior counsel appearing for the appellant
and the counsel appearing for the respondents.
3. Appellants imported raw materials and they avoided
payment of additional customs duty payable under Section 3 of the
Customs Tariff Act by getting debits in the pass book issued under
the DEPB scheme. Even though they took cenvat credit with respect
to the debits made in pass book on additional customs duty, the
department ordered reversal of for the reason that without payment
of additional customs duty under Section 3 in cash, appellants are
not entitled to cenvat credit under the Cenvat Credit Rules, 2002.
The contention of the appellants is that Rule 33(1)(vii) of the Cenvat
C.E.Appeal 15/2007 etc. 2
Credit Rules, 2002 entitles credit of additional duty leviable under
Section3 of the Customs Tariff Act equivalent to the duty of excise
specified under clauses (i) to (vi) therein. However department
rejected the claim by reference to Clauses 4.3.5 of the Export and
Import Policy for 2002-07 issued by the Government of India.
Clauses 4.3.5 is extracted hereunder for easy reference:-
“Applicability of 4.3.5. Normally the exports made under the
Drawback DEPB Scheme shall not be entitled
for drawback. However, the
additional customs duty/excise duty
paid in cash on inputs under DEPB
shall be adjusted as CENVAT Credit
or Duty Drawback as per rules
framed by the Department of
Revenue. In cases, where the
additional customs duty is
adjusted from DEPB, no benefit of
CENVAT/Drawback shall be
admissible.”
From the above it is clear that adjustment of additional customs
duty payable on imports by debiting the DEPB will not entitle for
CENVAT credit or duty draw back. However, the Exim policy was
amended by notification dated 28.1.2004 wherein under clause 11
the last sentence in para 4.3.5 of the policy is deleted. The
contention of the appellants is that after the deletion of the
negative clause contained in clause 4.3.5 appellants are entitled to
CENVAT credit in respect of additional customs duty adjusted by
C.E.Appeal 15/2007 etc. 3
debiting the DEPB.
4. Mr. John Varghese, counsel appearing for respondents
referred to a three member decision of the CESTAT in the case of
ESSAR Steel Ltd. v. Commissioner of C.Ex., Vishakhapatnam
{2004(173) E.L.T.239 (Tri.LB)} wherein they have held that cenvat
credit is not available to importers of raw materials who avail
exemption under notification 34/07-Cus under which exemption is
granted on customs duty and additional customs duty payable
under Section 3 of the Customs Tariff Act on condition of debiting
the equal amounts in the duty credit available in the pass book
issued under the DEPB scheme. Counsel for the respondents have
also relied on Clause 4.3.2 of the Exim policy which states that the
holder of DEPB shall have an option to pay additional customs duty
if any in cash as well. According to the respondents different
credit given in pass book issued under the DEPB scheme to
exporters is not duty paid on export, but is a credit at a prescribed
rate based on orders issued by the Commerce Ministry. Even
though exporters and transferees of DEPB credits are allowed to
import goods and clear the same without payment of customs duty
or additional customs duty under Section 3 of the Customs Tariff
Act they get the benefit only by notification 34/97 dated 7.4.1997
C.E.Appeal 15/2007 etc. 4
by which exemption is granted from payment of customs duty and
additional customs duty on condition of debit of equivalent amount
under the credits available in the DEPB. In other words the case of
the respondents is that the adjustment of duty credit in pass book
is not payment of duty and so much so CENVAT credit is not
available for the additional customs duty which the appellants have
not paid but claimed exemption under the above notification by
debiting the pass book. However, senior counsel appearing for
the appellants relied on clarification issued by the Central Board of
Customs and Excise produced as Annexure A9 in C.E. Appeal
15/2007, which in para 3 stated as follows:-
“In brief, the issue involved is, whether the duty
paid through debits under DEPB is to be treated as
payment of duty or exemption from duty. Hitherto,
the stand taken by the Department was that goods
cleared through debit under DEPB are exempted
goods and, accordingly, no Cenvat or drawback was
allowed for such payments. Para 4.3.5 of the Foreign
Trade Policy, 2004-09 was amended allowing
additional Customs duty paid through debit under
DEPB to be adjusted as Cenvat credit duty drawback.
The said position was clarified vide Circular No:
59/2004-Cus., dated 21.10.2004 (2004 (173) E.L.T.
T9). It implies that the goods cleared by debits
through DEPBs are not to be treated as exempted but
duty paid.”
Counsel for the respondent submitted that by virtue of Section 38A
of the Central Excise Act clarification which has the effect of
C.E.Appeal 15/2007 etc. 5
amendment applies only prospectively from the date of its issue
which is 21.7.2006 and since appellant’s imports are prior to that
date, they are not entitled to benefit of the clarification
6. After hearing both sides and after going through the
relevant provisions of the Act, Rules and notifications we are of the
view that Cenvat Credit Rules as such do not permit cenvat credit
for additional customs duty payable under Section 3 of the Customs
Tariff Act but claimed as exempt by the importer under notification
34/97 by adjusting credit available in pass book issued under the
DEPB scheme. In fact it is clear from the existing policy as originally
issued and after amendment that cenvat credit will be available for
additional customs duty payable under Section 3 of the Customs
Tariff Act only if it is paid in cash. Even though there is logic in the
argument of the appellants that adjustment of duty against credit
in pass book should be treated as payment in cash. Such a scheme
is not visualized in the cenvat credit rules even though DEPB
scheme was in force when the said rules were made. In fact, the
DEPB credit wholly entitles for duty exemption on imports by
debiting credit in pass book but does not extend further relief in
the form of the importer taking cenvat credit in respect of
additional customs duty payable under Section3 because goods
C.E.Appeal 15/2007 etc. 6
were released without payment of duty though pass book is debited
for the duty amount. The scheme of payment of additional customs
duty by cash under the Exim policy only means that if an importer
wants to avail cenvat credit in respect of additional customs duty
payable under Section 3 of the Customs Tariff Act he has to pay the
same in cash instead of adjusting the same by debiting the credit
available in the pass book issued under the DEPB scheme. In fact if
the credit available in the pass book is less than the additional
customs duty payable under Section3, the importer can pay the
difference in duty in cash and avail credit to that extent. While we
agree with the view expressed by the Tribunal in the above reported
decision, we find that entirely conflicting view is expressed in the
clarification issued by the Central Board of Customs and Excise. If
the clarification is treated as applicable for prior periods as well
and other importers who have availed exemption on additional
customs duty payable under Section 3 of the Customs Tariff Act are
granted cenvat credit, we see no reason why the same should be
denied to appellants. While upholding the view of the Tribunal we
remand the case to the adjudicating authority for getting
clarification from the Board of Customs and Excise and for granting
the relief to the appellants if similar other importers are allowed to
C.E.Appeal 15/2007 etc. 7
take cenvat credit based on the clarification issued above.
However, if the clarification is not retrospectively applied to other
importers, then the appellants also shall not be entitled to the
benefit. Orders shall be issued within two months from the date of
receipt of a copy of this judgment.
C.N. RAMACHANDRAN NAIR
Judge
K. SURENDRA MOHAN
Judge
jj
K.K.DENESAN & V. RAMKUMAR, JJ.
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M.F.A.NO:
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JUDGMENT
Dated: