IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN FRIDAY, THE 20TH MARCH 2009 / 29TH PHALGUNA 1930 C.E.Appeal.No. 15 of 2007(I) --------------------------------------- AGAINST THE ORDER NO.669/07 DATED 12/06/2007 OF THE CUSTOMS EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, SOUTH ZONAL BENCH, BANGALORE. ............. APPELLANT ------------------- WESTERN INDIA COTTONS LTD., REPRESENTED BY ITS CHAIRMAN, R.K.SHAMMEM, PAPPINISSERI, KANNUR - 670 561. BY ADV. MR.C.S.GOPALAKRISHNAN NAIR RESPONDENT(S): ------------------------- COMMISSIONER OF CENTRAL EXCISE, CENTRAL REVENUE BUILDINGS, MANANCHIRA,CALICUT. BY ADV. MR.P.PARAMESWARAN NAIR,ASST.SOLICITOR MR.JOHN VARGHESE,SC,CEN.BOARD OF EXCIS THIS CENTRAL EXICISE APPEAL HAVING BEEN FINALLY HEARD ON 20/03/2009, ALONG WITH CEA NO. 16 OF 2007 AND CEA NO.8 OF 2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Rs/ C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. ------------------------------------------------------------------------------------ C.E. Appeal Nos: 15, 16/07 & 8/2008 ----------------------------------------------------------------------------------- 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. ---------------------------------------------------- M.F.A.NO: ----------------------------------------------------- JUDGMENT Dated: