2009 (3) TMI 464 - HC - Customs

Cenvat Credit- The connected appeals arise from orders of the Customs Excise and Service Tax Appellate Tribunal holding that appellants are not entitled to claim cenvat credit on additional customs duty payable under Section 3 of the Customs Tariff Act that was debited in the pass book issued under the DEPB Scheme. Held that- In fact if the credit available in the pass book is less than the additional customs duty payable under Section 3, the importer can pay the difference in duty in cash and avail credit to that extent. While we agree with the view expressed by the Tribunal in the above reported decision, we find that entirely conflicting view is expressed in the clarification issued by the Central Board of Customs and Excise. If the clarification is treated as applicable for prior periods as well and other importers who have availed exemption on additional customs duty payable under Section 3 of the Customs Tariff Act are granted cenvat credit, we see no reason why the same should be denied to appellants. While upholding the view of the Tribunal we remand the case to the adjudicating authority for getting clarification from the Board of Customs and Excise and for granting the relief to the appellants if similar other importers are allowed to take cenvat credit based on the clarification issued above. However, if the clarification is not retrospectively applied to other importers, then the appellants also shall not be entitled to the benefit.

Summary

Issues:
- Entitlement to claim cenvat credit on additional customs duty under the DEPB Scheme
- Interpretation of Cenvat Credit Rules, 2002 and relevant notifications
- Availability of Cenvat credit for importers under Notification 34/97-Cus.
- Applicability of clarification issued by the Central Board of Customs and Excise

Analysis:
The case involved the question of whether the appellants were entitled to claim cenvat credit on additional customs duty under the DEPB Scheme. The Customs Excise and Service Tax Appellate Tribunal had held that the appellants were not eligible for such credit. The appellants imported raw materials and avoided payment of additional customs duty by debiting the pass book under the DEPB scheme. The department contended that without cash payment of additional customs duty, cenvat credit could not be claimed. The appellants argued that Rule 33(1)(vii) of the Cenvat Credit Rules, 2002 allowed credit for additional duty leviable under Section 3 of the Customs Tariff Act. However, the department relied on the Export and Import Policy for 2002-07, specifically Clauses 4.3.5, which stated that no benefit of CENVAT/Drawback would be admissible if additional customs duty was adjusted from DEPB.

The respondents referred to a CESTAT decision in Essar Steel Ltd. v. Commissioner of C.Ex., Vishakhapatnam, where it was held that importers availing exemption under Notification 34/07-Cus. were not eligible for Cenvat credit. The respondents argued that the adjustment of duty credit in the pass book was not considered as payment of duty, and therefore, CENVAT credit was not available. However, the appellants relied on a clarification by the Central Board of Customs and Excise, stating that duty paid through debits under DEPB was not exempted but considered as duty paid. The respondents contended that the clarification applied prospectively from its date of issue, thus not benefiting the appellants.

The High Court analyzed the relevant provisions and held that Cenvat credit Rules did not permit credit for additional customs duty claimed as exempt under Notification 34/97 by adjusting credit in the pass book. The court noted that the DEPB scheme allowed duty exemption by debiting the pass book but did not extend relief for claiming cenvat credit on additional customs duty. While acknowledging the conflicting views between the Tribunal and the clarification by the Central Board of Customs and Excise, the court remanded the case for clarification and possible relief based on the applicability of the clarification to other importers. The court directed the adjudicating authority to issue orders within two months from the date of the judgment.

In conclusion, the judgment addressed the complex interplay between the DEPB scheme, Cenvat Credit Rules, and relevant notifications to determine the eligibility of importers for claiming cenvat credit on additional customs duty. The court emphasized the importance of clarity in interpreting such provisions and directed further clarification for consistent application in similar cases.