Interest payable on clearance of warehoused goods when duty paid through DEPB debit - Customs - 026/2007

Interest payable on clearance of warehoused goods when duty paid through DEPB debit Circular No. 26/2007-Cus dated 20-7-2007 F.No. 475/04/2006-LC Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Waiver of interest on goods cleared from a warehouse when duty is paid by way of debit in DEPB licenses - Regarding I am directed to refer to instructions contained in Board's Circular No. 10/2006-Customs, dated 14-2-2006 (F.No. 473/07/2005-LC) [2006 (194) E.L.T. T23] regarding waiver of interest on Customs duty on warehoused goods and to say that a reference was received in the Board seeking clarification whether interest on warehoused goods is chargeable, if the Customs duty is paid by way of debit in DEPB. 2. The issue was examined and necessary clarification in the matter has been issued vide F.No. 605/85/2006-DBK, dated 21-7-2006 to the Commissioner concerned. Having regard to the general implications of the matter, a copy of the same is enclosed for information and necessary action. 3. In brief, the issue involved is, whether the duty paid through debits under DEPB is to be treated as payment of duty or exemption from duty. Hitherto, the stand taken by the Department was that goods cleared through debit under DEPB are exempted goods and, accordingly, no CENVAT or drawback was allowed for such payments. Para 4.3.5 of the Foreign Trade Policy, 2004-09 was amended allowing additional Customs duty paid through debit under DEPB to be adjusted as Cenvat credit or duty drawback. The said position was clarified vide Circular No. 59/2004-Cus., dated 21-10-2004 [2004 (173) E.L.T. T9]. It implies that the goods cleared by debits through DEPBs are not to be treated as exempted but duty paid. 4. Section 61 of the Customs Act, 1962 provides for charging of interest on duty payable on clearance of warehoused goods. Section 61(2)(i) and (ii) provides that the interest shall be payable on the amount of duty payable at the time of the clearance of the goods from the warehouse. In case of clearances under DEPB Scheme, the amount of duty payable is required to be debited from DEPB scrip. Therefore, it cannot be considered that the duty payable is nil or exempted. This is further supported by the fact that the CENVAT credit or duty drawback is available even when the additional Customs duty is debited under DEPB. 5. The issue regarding interest on warehoused goods has already been clarified by the Board vide Circular No. 10/2006-Cus., dated 14-2-2006 clarifying, inter alia , that interest on warehoused goods is not payable where the principal amount (duty) itself is not payable following the Apex Court Judgment in the case of Pratibha Processors [1996 (88) E.L.T. 12 (S.C.)] on this issue. In the case of notification governing imports under DEPB Scheme, the situation is slightly different. As explained above, the notification issued under DEPB Scheme provides for exemption subject to debit of duties in DEPB scrips. It is thus not a case where the goods are unconditionally exempt from duty. 6. In the light of the position explained above, it is clarified that interest is chargeable on duty paid by way of debit in DEPB on goods cleared from the warehouse. 7. The contents of this Circular may be brought to the notice of the field formations under your jurisdiction. F.No. 605/85/2006-DBK Ministry of Finance Department of Revenue Central Board of Excise Customs New Delhi, the 21st July, 2006. Shri Najib Shah Commissioner of Customs (Imports) Mumbai-II Nhava Sheva. Sir, Subject : Waiver of interest on goods cleared from a warehouse when duty is paid by debit under DEPB licences - Regarding. Please refer to your letters bearing F.No. S/6-Gen-4300/05-06-Bond dated 27-3-2006 and 10-4-2006 on the above mentioned subject. 2. The issues raised in your letters have been examined. Prior to 1-9-2004, Para 4.3.5 of the Exim Policy, 2002-07 provided that where the additional customs duty is adjusted from DEPB, no benefit of Cenvat/drawback shall be admissible. However, the position has changed w.e.f. 1-9-2004 by an amendment in Para 4.3.5 of Foreign Trade Policy, 2004-09 providing that the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as Cenvat credit or duty drawback. To implement this provision, Circular No. 59/2004-Customs, dated 21-10-2004 was issued. It is noted that the CESTAT's order in the case of M/s. Essar Steel was in the context of interpreting an earlier provision of the Foreign Trade Policy. The Policy has since changed and the Government has consciously decided to allow drawback of additional customs duty paid through debit under DEPB. 3. As per the notification governing imports under DEPB Scheme, the basic duty and additional duty are exempt subject to the condition that the element of these duties leviable on the goods is debited from DEPB. In other words, in the case of DEPB Scheme, though the imports are governed by an exemption notification, the fact remains that in case of such imports the duty is debited from the DEPB scrips. It may be appreciated that unlike other exemption notifications whereunder no duty is payable, the exemption notification issued under DEPB Scheme provides for exemption subject to debiting of duty from DEPB. Therefore, it was clarified vide Circular No. 5/2005-Cus., dated 31-1-2005 that education cess has to be debited from DEPB Scrips in case of imports under DEPB Scheme. As for the CESTAT decision in the case of Reliance Industries Ltd., it is informed that the Board has directed the concerned Commissioner to file an appeal before the Hon'ble High Court against the said decision. 4. The issues regarding interest on warehoused goods have already been clarified by the Board vide Circular No. 10/2006-Cus., dated 14-2-2006 clarifying, inter alia , that interest on warehoused goods is not payable where the principal amount (duty) itself is not payable. The Board has followed the Apex Court Judgment in the case of Pratibha Processors on this issue. In the said case, the Hon'ble Supreme Court has held, inter alia , that when the goods at the time of removal are exempted from payment of duty due to availing of advance licence obtained after the expiry of warehousing period, then the liability to pay interest cannot be saddled on a non-existing duty and that the liability to pay interest under Section 61(2) of Customs Act is solely dependent on actual liability to pay duty. In the case of notification governing imports under DEPB Scheme, the situation is slightly different. As explained above, the notification issued under DEPB Scheme provides for exemption subject to debit of duties in DEPB Scrips. It is thus not a case where the goods are unconditionally exempt from duty. 5. In regard to the issue raised regarding payment of Special CVD, attention is invited to Circular No. 18/2006-Cus., dated 5-6-2006 clarifying inter alia that when the goods are imported under DEPB, Target Plus, Served from India Scheme etc., the exemption from basic customs duty, additional duty (CVD) and special additional duty (CVD) shall only be available if the element of these duties is debited in the duty scrips/entitlement certificates. 6. In the light of the position explained above, it is clarified that interest is chargeable on duty paid by way of debit in DEPB on goods cleared from the warehouse. It is also clarified that special CVD is chargeable where the basic customs duty and additional customs duty are paid through DEPBs. Sd/- (M. Subramanyam) Deputy Secretary (DBK)