2005 (8) TMI 147 - AT - Customs

Cenvat/Modvat - Education cess - Strictures against Commissioner (Appeals) - Whether the newly imposed Education Cess of 2% is leviable on goods cleared under the Duty Entitlement Pass Book (DEPB) Scheme - HELD THAT - We find that the DEPB Scheme operates under an exemption Notification No. 45/2002-Customs, dated 22-4-2002. The said notification specifically exempts goods imported under DEPB Scheme from basic, additional and special additional duties of customs. However, in terms of the conditions specified in the said notification, the exemption operates by allowing duty credit in the Duty Entitlement Pass Book on exports at the rates specified and subsequently by debiting an amount equal to duty payable, against such credit in the Pass Book, on imports. As such, such crediting and debiting of duty amounts is a matter of procedure and convenience, but the notification basically provides full exemption from customs duty. Our view is supported by earlier decision of the Tribunal in Essar Steel Ltd. v. CCE, 2004 (8) TMI 123 - CESTAT, NEW DELHI ), wherein it was held that Modvat credit against DEPB Debits cannot be allowed, as duties are exempted under the DEPB Scheme and the relevant notification. Accordingly, we hold that no Education Cess is leviable on fully exempted DEPB imports and therefore, no debits from DEPB scrip are required. We are also of the view that the Circular dated 31-1-2005 is contrary to the provisions of the Finance (No. 2) Act, 2004 read with Notification No. 45/2002-Customs, dated 22-4-2002. The Revenue appeal is, therefore, rejected. In view of our findings that no debit towards Education Cess is required, it may be necessary for the concerned authorities to ensure that no DEPB credits are allowed at the time of exports giving rise to undue benefit. We are of the view that in the circumstances of this case, it was not proper for him to pass the aforesaid general remarks against the department. There is no requirement under the law for the Commissioner (Appeals) to declare what he will do in respect of future appeals. He is duty bound to deal with each appeal before him on its own merit. We are also of the view that where there is a breach of the principles of natural justice, it will be appropriate for a departmental appellate authority to remand the matter for fresh adjudication with the direction to follow principles of natural justice as has been done by the Tribunal in the past on numerous occasions. Such remands are necessary not only to ensure observance of principles of natural justice by the lower authorities but also to protect the interest of public revenue which should not be allowed to suffer by setting aside rectifiable orders. The Revenue appeal is, therefore, rejected.

Summary

Issues:
1. Whether the newly imposed Education Cess of 2% is leviable on goods cleared under the Duty Entitlement Pass Book (DEPB) Scheme.

Analysis:
1. The appeal involved a small amount but raised an important question of law regarding the imposition of Education Cess on goods cleared under the DEPB Scheme. Both parties acknowledged the absence of a precedent decision on this issue.

2. Chapter VI of the Finance (No. 2) Act, 2004 imposed Education Cess on imported goods at a rate of 2% of customs duties levied and collected. The Act specified the Education Cess as a surcharge for the purpose of providing quality basic education. The Education Cess on imported goods was to be calculated on the aggregate of customs duties collected, excluding certain specified duties.

3. Clarifications from the Ministry of Finance and Chief Commissioner of Customs, Mumbai Zone-II, indicated that Education Cess would not be leviable on goods fully exempted from excise or customs duties. The Education Cess exemption was tied to the exemption of customs duties on goods.

4. A subsequent circular stated that Education Cess at 2% would be debited from the DEPB Scrip for imports under the DEPB Scheme, despite the scheme's duty exemption provisions. This circular contradicted the earlier understanding of Education Cess exemption on fully exempted imports.

5. The lower appellate authority had ruled in favor of the respondents before the issuance of the circular. The appeal by Revenue challenged this decision following the circular's release.

6. The DEPB Scheme provided full exemption from basic, additional, and special additional customs duties. The scheme operated by allowing duty credit on exports and debiting duty payable on imports from the credit. Previous tribunal decisions supported the view that duties were exempted under the DEPB Scheme.

7. The Finance Act specified Education Cess as a percentage of customs duty levied and collected. As imports under the DEPB Scheme were fully exempt from customs duty, the Education Cess amount was considered nil. The absence of specific notification for Education Cess on DEPB imports indicated no levy on such imports.

8. The Tribunal held that no Education Cess was leviable on fully exempted DEPB imports, and no debits from DEPB scrip were required. The circular from the Ministry of Finance was deemed contrary to the Finance Act provisions and the Notification governing DEPB imports.

9. Authorities were advised to ensure that no undue DEPB credits were allowed during exports due to the exemption of Education Cess on fully exempted imports.

10. The Tribunal criticized the lower appellate authority for general remarks against the department, emphasizing the importance of adherence to natural justice principles in adjudication processes.

11. Directions were given to send copies of the order to relevant authorities for information and compliance with observations made during the case proceedings.