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TMI Blog2012 (7) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... fter to be referred to as 'the DEPB scheme'). 2. The petition arises in the following factual background. The petitioner No.1 is a company registered under the Companies Act. The petitioner No.2 is its Chairman and Managing Director. The petitioners are engaged in manufacturing various goods and also exporting such goods to various countries. To encourage exports, the Government of India has been framing several schemes, all in different forms granting duty exemption to the exporters. The petitioners have been availing of the DEPB scheme with respect to which, exemption from payment of import duty is granted at the specified rates for the specified commodities under Notification No. 45/2002-Cus. dated 22-4-2002 (hereinafter to be referred to as 'the exemption notification No.45/2002). 3. In the Union Budget of the year 2004-05, the Central Government imposed a levy of education cess as surcharge for the purpose of fulfilling the commitment of the Government to provide and finance quality basic education. To collect such cess, provisions were made in the Finance Act, 2004 wherein particularly sections 81 to 85 pertained to education cess. 4. Such education cess is to be levied at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious adjudication. The petitioners have, therefore, prayed for quashing such recovery notices and further prayed that the respondents be prevented permanently from raising any such demand. 6. The respondents have appeared and filed two affidavits. Their stand as emerging from such affidavits is that DEPB scheme is an export incentive scheme which is vitally different from other schemes. Under DEPB scheme, the duty upon import of goods is not fully exempt but the exporter has an option of reducing his liability by utilising the credit in the DEPB scrips. It is further the case of the respondents that the exemption provided in a DEPB scheme is conditional and in essence what is being done is adjustment of the credits in the passbook of the importer in lieu of actual payment of the customs duty. The respondents have also drawn a distinction that unlike other schemes, credits in a DEPB scheme are freely transferable. 7. On the basis of such facts, the learned counsel for the petitioners submitted that the respondents have committed a grave error in issuing the impugned circular clarifying that education cess on the prescribed rate would be debited from the DEPB scrip of an importer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of exemption notification exempting payment of customs duty. 8. On the other hand, learned counsel Ms. Amee Yajnik for the respondents opposed the petition contending that DEPB scheme is vitally different from other export incentive schemes. Under the DEPB scheme, the credit in the DEPB passbook is adjusted to the extent of customs duty liability. In that view of the matter, customs duty cannot be stated to have been exempt but is adjusted against the credit lying in the scrips. The counsel further pointed out that DEPB scrips are also freely transferable. On these grounds, the counsel contended that payment of education cess at the prescribed rate was justified. 9. Having thus heard the learned counsel for the parties and having perused the documents on record, we may notice that education cess was introduced in the year 2004-05 by enacting sections 81 to 85 in the Finance Act, 2004. These provisions are included in Chapter VI titled 'Education Cess'. Section 81 which is the charging section provides inter alia that there shall be levied and collected, in accordance with the provisions of this Chapter, as surcharge for the purposes of the Union, a cess called the Education Ces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B scheme, it can be stated that the Central Government is levying and collecting duties of customs. 11. In order to be able to do so, we would have to appreciate the nature of the DEPB scheme. The DEPB scheme is a part of Exim Policy of the Government of India formulated under section 5 of the Foreign Trade (Development and Regulation) Act, 1992. The policy outlines the objectives including to accelerate the country's transition to globally oriented vibrant economy with a view to derive maximum benefits from expanding global market opportunities and to stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production. 12. Chapter 7 of the Export and Import Policy pertains to duty exemption schemes. Various duty remission schemes framed by the Government enables post export replenishment/remission of duty on the inputs used in the export production. Duty Entitlement Passbook Scheme is one such duty remission schemes. The object of DEPB scheme is to neutralise the incidence of customs duty on the import component of the export product. Such neutralisation is provided by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1962, the Government of India vide its exemption notification No.45/2002, granted total exemption from payment of customs duty and additional duty on goods other than edible oils on imports being made under DEPB scheme subject to certain conditions. Such exemption on edible oils, however, was limited to 50% of the standard rate of duty applied as also 50% of the additional duty. Such conditions relevant for our purpose read as under:- (i) that the importer has been issued a Duty Entitlement Pass Book by the Licensing Authority in terms of paragraph 4.3 of the Export and Import Policy; (ii) the importer has been permitted credit entries in the said Duty Entitlement Pass Book by the Licensing Authority at the rates notified by the Government of India in the Ministry of Commerce for the products exported; (iii) the said Duty Entitlement Pass Book is produced before the proper officer of Customs for debit of the duties leviable on the goods but for exemption contained herein: 16. From the nature of DEPB scheme and the exemption granted to imports made under such scheme, it can be seen that the very purpose is to neutralise the import duty component on the imported goods used for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was levying and collecting customs duty from the importers in form of adjustment of credit in the DEPB scrips. We may recall that such credits are given at specified rates on the basis of SION norms primarily taking into account deemed import contents of an export product and the basic customs duty payable on such deemed imports. Thus through such adjustments on the DEPB scrips at the time of further imports, customs duty component is sought to be neutralised. The view expressed by the Tribunal in the case of Reliance Industries Ltd. (supra) appeals to us. In the said decision, the Tribunal taking note of the provisions contained in section 81 and 84 of the Finance Act, 2004 held that the impugned circular No.5/2005 is not legally sustainable. The Tribunal held that crediting and debiting of entries in the passbook is a matter of procedure and convenience and in essence, the Notification No.45/2002 provides for full exemption from payment of customs duty. 20. We may also recall that the Larger Bench of the Tribunal in the case of Essar Steel Ltd. (supra) held that mere entry in the DEPB book is not sufficient for eligibility of Modvat credit availed on the strength of Bill of Entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit in the DEPB scrip against the customs duty liability. However, such adjustment is only procedural in nature. As noted earlier, para 7.14 of the Export Import Policy clearly provided that the exporter who does not desire to go through the licensing route would have an optional facility of being governed under the DEPB scheme. 25. We may note that in cases of Advance Licence Schemes under which imports are being made and which are exempt from customs duty under various notifications issued by the Central Government under section 25 of the Customs Act, 1962, no education cess is demanded by the respondents. In fact, the impugned notification itself is sufficiently clear and records that imports against Advanced Licences are exempt from all duties of customs and therefore, it follows that education cess at 2% is not leviable on such imports. In case of DEPB, however, a distinction is sought to be drawn on the premise that though the importers are governed by exemption notification, the fact remains that in case of such imports, the duty is debited from DEPB scrip. To our mind, such distinction is not valid. The clarificatory circular itself refers to the imports made under the DE ..... X X X X Extracts X X X X X X X X Extracts X X X X
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