2005 (6) TMI 408 - AT - Central Excise

Summary

Issues:
- Modvat credit eligibility for CVD paid through DEPB
- Interpretation of EXIM Policy and Notification No. 34/97-Cus
- Validity of penalty imposed by original authority

Modvat Credit Eligibility for CVD Paid through DEPB:
The appeal before the Appellate Tribunal CESTAT, CHENNAI concerned the eligibility of Modvat credit for Countervailing Duty (CVD) paid through Duty Exemption Entitlement Pass Book (DEPB). The respondents had imported capital goods for their 'caustic soda fusion plant' and paid part of the CVD through DEPB. The original authority disallowed Modvat credit for the DEPB payment, equating it to cash payment. However, the Commissioner (Appeals) allowed the credit based on a precedent set in Polyhose India Pvt. Ltd. v. CCE, Chennai. The Revenue appealed, arguing that the Tribunal's decision in Polyhose India was under review by the Madras High Court, and a Larger Bench decision in Essar Steel Ltd. disapproved the Polyhose India view, stating that simultaneous Modvat credit and exemption benefit was not permissible.

Interpretation of EXIM Policy and Notification No. 34/97-Cus:
The Appellate Tribunal analyzed the arguments presented by both parties regarding the interpretation of the EXIM Policy and Notification No. 34/97-Cus. The Revenue contended that the Larger Bench's decision in Essar Steel Ltd. settled the issue in their favor, emphasizing that the DEPB payment did not entitle the importer to Modvat credit as per the Notification. The respondents, on the other hand, argued that the DEPB payment should allow Modvat credit, citing differences in the EXIM Policy provisions. The Tribunal, after careful consideration, aligned with the Larger Bench decision, stating that the DEPB payment did not warrant Modvat credit as it conflicted with the exemption Notification and EXIM Policy provisions.

Validity of Penalty Imposed by Original Authority:
Regarding the penalty of Rs. 1000/- imposed by the original authority on the importer, the Tribunal opined that such a penalty was unwarranted in a case involving the interpretation of an Exemption Notification and EXIM Policy provisions. Consequently, the Tribunal set aside the impugned order, restoring the original authority's decision except for the penalty. The Revenue's appeal was allowed in this regard, upholding the decision on Modvat credit eligibility but dismissing the penalty imposed on the importer.

This judgment highlights the complexities surrounding Modvat credit eligibility for CVD paid through DEPB, the significance of interpreting EXIM Policy and relevant Notifications, and the discretion of authorities in imposing penalties in cases involving intricate legal matters.