2004 (8) TMI 123 - AT - Central Excise

Cenvat/Modvat - 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 34/97-Cus. dated 7-4-1997 which exempts duties of customs when the duty leviable on the goods is debited to the DEPB - HELD THAT - Notification 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. 2002 (11) TMI 164 - CEGAT, CHENNAI , 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, 2002 (3) TMI 171 - CEGAT, BANGALORE 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. We, therefore, answer the reference by holding that mere debit in the pass book is not sufficient for the eligibility of Modvat credit. Thus, 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 23-6-1998 to 4-8-1998 against demand made in the DEPB Book. However, we reduce the penalty to Rs. 2 lakhs. The appeal is thus, partly allowed.

Summary

Issues involved: 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 34/97-Cus. dated 7-4-1997 which exempts duties of customs when the duty leviable on the goods is debited to the DEPB.

Comprehensive Details:

1. The DEPB Scheme allows exporters to receive credit in the Duty Entitlement Pass Book for goods exported, which can be used to discharge import duty liability. Notification No. 34/97-Cus. exempts customs duties on imported goods when debited to credit in the pass book. Para 7.41 of the Exim Policy allows adjustment of additional customs duty paid in cash under the DEPB Scheme as Modvat credit.

2. The Department contested that Modvat credit is not admissible when CVD is paid by debit in the Pass Book due to availing the benefit of Notification 34/97-Cus. Appellants relied on previous Tribunal decisions allowing Modvat credit for CVD paid by pass book debit.

3. The Tribunal noted that Modvat scheme requires duty payment on inputs, which was not done in this case due to availing the Notification 34/97 benefit. Previous decisions were based on technicalities, but the Tribunal disagreed, emphasizing the necessity of duty payment for Modvat credit eligibility.

4. Notification 34/97-Cus. exempts duty payment when debited in the pass book, allowing Modvat credit only if duties are paid. Previous decisions did not consider this aspect, leading to the conclusion that mere pass book debit is insufficient for Modvat credit eligibility.

5. The Tribunal held that mere debit in the pass book is not enough for Modvat credit eligibility. The appeal was partly allowed, upholding the disallowance of Modvat credit but reducing the penalty imposed.

This judgment clarifies the conditions for availing Modvat credit under the DEPB Scheme and the implications of benefiting from customs duty exemptions under specific notifications.