Para 4.35 of Export Import Policy 2002-04 had a specific provision that in cases where the additional customs duty is adjusted from DEPB, no benefit of CENVAT/Drawback shall be admissible. This provision was deleted on 28th January 2004, thereby removing the restriction. So, we have taken Cenvat Credit of the same after that date. But, the Central Excise authorities have denied the benefit on the grounds that Cenvat Credit Rules at that time did not allow that. Can the Finance Ministry deny what the Commerce Ministry allows?
The Parliament has given the Commerce Ministry the mandate to formulate, notify and implement export promotion schemes. So, as a matter of principle, the Finance Ministry should follow what the Commerce Ministry says in matters that concern export promotion schemes and the exporter should not be put to difficulties due to the failure of the Finance Ministry to make necessary consequential amendments in law.
After 1.9.2004, the Customs notifications relating to DEPB and several other schemes specifically allow Cenvat Credit of the additional duty of customs debited to DEPB. Cenvat Credit is being allowed in respect of additional duty of customs debited to duty credit scrips issued under the Focus Product Scheme, Focus Market Scheme, Target Plus Scheme, etc. Even in respect of Duty Free Credit Entitlement Scheme for status holders and service providers, Cenvat Credit is allowed of additional duty of customs debited to the duty credit scrips issued for exports made before 1.9.2004. So, I do not see why the Government cannot regularise old matters by allowing the Cenvat Credit.
Granting Cenvat Credit of the additional duty of customs debited to DEPB has no Revenue implications. If the Credit is not allowed, the DEPB holders will not offer the scrip for debit of additional duty but merely use the available balance to claim the exemption of basic duty of customs. The Finance Ministry appreciates this position and that is why after 1.9.2004, legal provisions have been changed allowing Cenvat Credit of additional duty debited to DEPB. The CBEC Customs circulars 59/2004 dated 21.10.2004, 18/2006 dated 5.6.2006, 27/2006 dated 13.10.2006 and 6/2008 dated 28.4.2008 treat debit to DEPB as duty payment. There is no reason why the position need be different before 1.9.2004.
In fact, the CBEC Customs Circular 26/2007 dated 20.07.2007 clearly says that “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 or 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.”
The CBEC should take note that Para 4.3.5 was amended on 28.1.2004 and accordingly treat all debits of additional to DEPB as duty payment with effect from 28.1.2004.