In a significant judgment, the Customs, Excise and Gold Control Tribunal (CEGAT) has allowed the Additional Duty of Customs (known as CVD) to be taken as Modvat credit. Till now, CVD was paid by debiting to the Duty Entitlement Passbook (DEPB).
Exporters earn duty credits against their exports in the form of a DEPB scrip. Normally, the duty credit entitlement rate is worked out and notified as a certain percentage of export value. Till recently, the DEPB rate was determined through the basic Customs duty on the inputs required for use in the manufacture of the export product.
Exporters have the option to sell the DEPB. Any DEPB holder can produce the scrip before Customs and ask it to debit the duty payable on the imported goods to the DEPB, instead of paying in cash.
The relevant Customs exemption notifications (e.g. 34/97) allow exemption from basic Customs duty if debit of such duty is made in the DEPB. The importer has the option to pay CVD in cash or by way of debit in the DEPB.
The Central Excise department held a view that wherever CVD is paid by debit to DEPB, Modvat credit will not be available to the importer-manufacturer, nor can an importer issue modvatable invoices to others on the basis of such debit of CVD to the DEPB.
The view enforced was that Modvat credit will be available only when CVD is paid in cash and that importer can issue modvatable invoices only when he has paid CVD in cash. [Cochin Commissionerate Trade Notice no. 34/99, dated 23-6-1999 reported in 1999(112) E.L.T.T6]
The view of the Central Excise department came up before a single member bench of the Tribunal in the case of Polyhose India Pvt. Ltd. [2003(152) EL:T 361 (T-Chennai)]. The Tribunal said that the revenue is oblivious of the fact that the total result of the debit in DEPB pass book is as good as cash payment.
"The appellant does not get the benefit to the extent to which there is a debit under the DEPB scheme towards CVD," said the Tribunal.
The Member (J) of the Tribunal went on to say, "The Revenue is in fact receiving the CVD duty on debit made in the DEPB scheme pass book. Therefore, the Bill of Entry endorsement reflecting the payment towards CVD and Bill of Entry being a specified document under Rule 57G, appellants are entitled to avail Modvat credit.
The purpose of giving Modvat credit is to avoid cascading effect hence so long as CVD has been paid either in the form of cash or though debit entries, the assessee is entitled for the benefit of Modvat credit. The Revenue's stand is too technical and I do not see any substance in the Revenue's stand."
Strangely, the Department Representative did not strongly argue the government's view that the relevant notifications simply exempt the goods from levy of duty and that debit to the DEPB is only one of the several conditions to be fulfilled for availing the exemption.
This judgment is good news for importers who had, by mistake or otherwise, paid CVD through DEPB but could not take Cenvat/Modvat Credit of the CVD. The department, however, may appeal on the grounds that whatever duty is fully exempted i.e., not paid at all can not be treated as paid.
(Writer's e-mail:tncr@sify.com; rtnc99@yahoo.com)
