2004 (97) ECC 753 (Tri-LB)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Larger Bench

Ms. Jyoti Balasundaram, Vice President, Shri V.K. Agrawal, Member (T) and Shri P.S. Bajaj, Member (J)

Essar Steel Ltd.

Versus

CCE, Vishakhapatnam

Appeal No. E/1445/99-Bang.

[Arising out of Order-in-Original No. 16/99-ASR dated 25.6.99 passed by the Commissioner of Central Excise & Customs, Vishakhapatnam]

Final Order No. 945/2004-NB-A, dt. 16.8.2004, Certified on 23.9.2004

Interpretation

Modvat Scheme -- Is a special scheme where an assessee can avail of the duty paid on inputs as modvat under certain conditions. One such condition is that duty should have been paid on the inputs.

Interpretation

DEPB Scheme -- Credit is given to exporter in the Duty Entitlement Pass Book by the DGFT authorities when the goods are exported. Credit obtained by an exporter can be used to discharge import duty liability on the goods imported. The scheme is basically a brain child of Commerce Ministry. In order to facilitate importers availing of the Scheme, the Govt. of India, Ministry of Finance issued Notification No. 34/97-CUS, which exempts duties of customs leviable on imported goods provided such duties are debited to credit available in the pass book issued by DGFT. In case entire duty payable cannot be debited in the pass book for want of requisite balance the importer is required to discharge balance duty by cash payment. During the relevant period Para 7.41 of the Exim Policy prescribed that the additional customs duty paid in cash on inputs cleared under DEPB Scheme can be adjusted as Modvat credit.

Modvat Credit

Document -- The appellants availed of the credit on the strength of such a document, the document itself indicate that no CVD was paid and therefore, Modvat credit cannot be taken on the strength of such a document. Hence, mere debit in the pass-book is not sufficient for the eligibility of Modvat Credit. -- Rule 57G of CER.

PRESENT :

Shri K.S. Ravi Shankar, Advocate for the appellant.

Shri Kumar Santosh, JDR for the respondent.

Cases Cited :

1. Grasim Industries Ltd. v. CCE, Bangalore, 2002 (149) ELT 764......................... [Para 6]

2. Polyhose India Pvt. Ltd. v. CCE, Chennai, 2003 (152) ELT 361 (T)............. [Paras 4 & 6]

3. SPIC Ltd. v. CCE, Chennai, 2004 (91) ECC 401 (T).................................. [Paras 4 & 6]

Per : Ms. Jyoti Balasundaram

The issue referred to the Larger Bench is whether mere debit in the DEPB Pass Book is sufficient for the eligibility of Modvat credit availed on the strength of Bills of Entry wherein the importers availed of the benefit of Notification No. 34/97-Cus dated 7.4.97 which exempts duties of customs (both basic plus additional) when the duty leviable on the goods is debited to the DEPB.

2. We have heard both sides. Under the DEPB Scheme credit is given to exporter in the Duty Entitlement Pass Book by the DGFT authorities when the goods are exported. Credit obtained by an exporter can be used to discharge import duty liability on the goods imported. The scheme is basically a brain child of Commerce Ministry. In order to facilitate importers availing of the Scheme, the Govt. of India, Ministry of Finance issued Notification No. 34/97-Cus. which exempts duties of customs leviable on imported goods provided such duties are debited to credit available in the pass book issued by DGFT. In case entire duty payable cannot be debited in the pass book for want of requisite balance, the importer is required to discharge balance duty by cash payment. During the relevant period Para 7.41 of the Exim Policy prescribed that the additional customs duty paid in cash on inputs cleared under DEPB Scheme can be adjusted as Modvat credit.

3. Appellants have taken credit of CVD debited in the Pass Book. It is the contention of the Department that modvat credit is not admissible when CVD is paid by way of debit in the Pass Book for the reason that the assessee/appellant availed the benefit of Notification No. 34/97-Cus whereby it was exempted from payment of duty of customs.

4. Before us the appellants contend that the issue is covered in their favour by the decision of the Tribunal in Polyhose India Pvt. Ltd. v. CCE, Chennai, 2003 (152) ELT 361 wherein the Single Member Bench took the view that modvat credit can be taken of the CVD paid by debit in the pass book. This decision was later followed by the Division Bench in SPIC Ltd. v. CCE, Chennai, 2004 (91) ECC 401 (T) : 2004 (61) RLT 671. On the other hand, the learned DR pleaded that Bills of Entry clearly show that the importer availed of the benefit of Notification No. 34/97-Cus- that 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 particularly when the Import Policy itself prescribes in para 7.41 that only cash payment towards CVD can be taken as modvat credit. He submitted that the decisions relied upon by the learned Counsel have not considered that the importer availed of the benefit of Notification No. 34/97-Cus, and, therefore, these decisions are distinguishable and cannot be relied upon to support the appellants' stand.

5. We have carefully considered the rival submissions. Modvat scheme is a special scheme where an assessee can avail of the duty paid on inputs as modvat under certain conditions. One such condition is that 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. In the cases relied upon by the learned Counsel for the appellant the Tribunal observed that the Department was standing on technicalities when it does not allow modvat credit of duty paid by way of debit in the pass book while allowing credit of duty paid in cash. We, however, are unable to bring ourselves to agree with the above. Our reasons are recorded herein below:

6. Notification No. 34/97-Cus. exempts goods from payment of duty when the amount representing such duties is debited in the pass book. Thus, a person who has not availed the benefit of the Notification and pays duties alone can take modvat credit. When the importer pays duties of customs in part by cash, he is not availing the benefit of the said Notification to that extent. That is why para 7.41 of the Exim Policy stipulates that modvat credit is taken to that extent, that is, to the extent to which duties are discharged by cash payment. In the Polyhose India Pvt. Ltd. and Spic Ltd. case, the Tribunal did not discuss the purport of the Notification No. 34/97 and merely observed that under Rule 57G of the Central Excise Rules, an assessee can avail of modvat credit on the strength of Bill of Entry. While it is true that the appellants availed of the credit on the strength of such a document, the document itself indicate that no CVD was paid and, therefore, Modvat credit cannot be taken on the strength of such a document. In this view of the matter the finding of the Tribunal in the case of Grasim Industries Ltd. v. CCE, Bangalore, 2002 (149) ELT 764 that relevant date of document eligible for credit of duty would be the date of payment of CVD in cash is required to be accepted.

7. We therefore answer the reference by holding that mere debit in the pass-book is not sufficient for the eligibility of Modvat credit.

8. We now proceed to dispose of the appeal itself with the consent of both sides.

9. In the light of the answer to the reference, we uphold the impugned order to the extent that it disallows Modvat credit of Rs. 19,89,464 taken by the appellants herein during the period from 23.6.98 to 4.8.98 against demand made in the DEPB Book. However, having regard to the totality of the facts and circumstances of the case, we reduce the penalty to Rs. 2 Lakhs. The appeal is thus, partly allowed.

……………………..