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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 ..... and collecting customs duty from the importers in form of adjustment of credit in the DEPB scrips.Thus through such adjustments on the DEPB scrips at the time of further imports, customs duty component is sought to be neutralised. Circular dated 8-7-2004, the Ministry of Finance, in a question whether goods that are fully exempt from excise/customs duty or are cleared without payment of such duty would be subject to education cess, clarified that the education cess is leviable at the rate of 2% of the aggregate of the duties of excise/customs levied and collected. If goods are fully exempted from excise duty or customs duty or are chargeable to nil rate of duty or are cleared without payment of duty under specified procedure such as clearance bond, there is no collection of duty and, therefore, no education cess would be leviable on such clearances- . Duty demands, were even otherwise made without issuing any show-cause notice or adjudication. Even on such grounds, the notices are liable to be quashed - in favour of assessee. - Special Civil Application No.11635 of 2005 - - - Dated:- 21-6-2012 - Akil Kureshi and Harsha Devani, JJ. For Appellants: Mr Paresh M Dave Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, is also not liable to pay education cess at the prescribed rate. The case of the petitioners is that in case of imports made under other export benefits schemes for example, Advance Licence Scheme, no education cess is demanded on the premise that when no customs duty is being paid by the importer, education cess would not apply The petitioners contend that the DEPB scheme is no different from other similar export incentive schemes and, therefore, the respondents cannot levy education cess on the imports made under the DEPB scheme. This contention of the petitioners is based mainly on the premise that the goods imported under the DEPB scheme by virtue of exemption notification No.45/2002, carry 'nil' rate of customs duty and additional duty. Under such exemption notification, edible oil, however, attracted 50% of the normal customs duty and additional duty. In other words, the exemption in case of import of edible oil was limited to 50% of the customs duty and additional duty payable otherwise. The petitioners agree that in such a case, when 50% of the duty is being paid by the importer, education cess calculated on such component, would be attracted. The petitioners point ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing collected on the premise that the importer does not pay any customs duty. The counsel submitted that on the same analogy, even on the imports made under the DEPB scheme, education cess cannot be levied. 7.2 The counsel further pointed out that on the imports made under the DEPB scheme, no Modvat credit was being permitted. This would, according to the counsel, further go to show that no customs duty is being collected on the imports made under the DEPB scheme. 7.3 With respect to demand notices, the counsel submitted that such notices were issued without any previous adjudication. No show-cause notice or hearing was granted to the petitioners. The duty demand pertains to earlier period of which the assessments were made and finalised. Without reopening such assessments or atleast without issuing the show-cause notice for alleged unpaid duty, straightaway no recovery notice could have been issued. 7.4 In support of his contentions, the counsel relied on the decision of Customs Excise and Service Tax Appellate Tribunal ('CESTAT' for short) in the case of Commissioner of Customs, Mumbai vs. Reliance Industries Ltd. reported in 2005 (188) E.L.T. 449 wherein an identical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the rate of 2% calculated on the aggregate of duties of customs which are levied and collected by the Central Government. Section 84 reads as under:- 84. (1) The Education Cess levied under section 81, in the case of goods specified in the First Schedule to the Customs Tariff Act, 1975, being goods imported into India, shall be a duty of customs (in this section referred to as the Education Cess on imported goods), at the rate of two per cent., calculated on the aggregate of duties of customs which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under section 12 of the Customs Act, 1962 and any sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs, but not including - (a) the safeguard duty referred to in sections 8B and 8C of the Customs Tariff Act, 1975. (b) the countervailing duty referred to in section 9 of the Customs Tariff Act, 1975: (c) the anti-dumping duty referred to in section 9A of the Customs Tariff Act, 1975; and (d) the Education Cess on imported goods. (2) The Education Cess on imported goods shall be in additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Foreign Trade. The duty credit under the scheme would be calculated by taking into account the deemed import component of an export product as per the SION norms and the basic customs duty payable on such deemed imports. 13. In case of Liberty India vs. Commissioner of Income-Tax reported in 317 ITR 218 the Apex Court traced the nature of DEPB benefits and made following observations:- DEPB is an incentive. It is given under the Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as a percentage of the FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by the DGFT for import of raw materials, components etc., DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed exports. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition. 17. We may recall that Chapter 7 of the Export import Policy pertains to duty exemption/remission schemes. Para 7.1 thereof provides that the duty exemption scheme enables import of inputs required for export production. The duty remission scheme enables post export replenishment/ remission of duty on inputs used in the export product. Such remission schemes include Advance Licence Scheme and Duty Free Replenishment Certificate Scheme as also the Duty Entitlement Passbook Scheme. Para 7.14 of said Chapter 7 of the Export Import Policy pertains to Duty Entitlement Passbook Scheme. It states at the outset that for the exporters not desirous of going through the licensing route, an optional facility is given under DEPB. The object of DEPB scheme is to neutralise the incidence of customs duty on the import component of the export product. It further provides that such neutralisation shall be provided by way of grant of duty credit against the export product. 18. From the nature of DEPB scheme noted above and the exemption from payment of customs duty on imports made under such scheme, it can be gathered that the very purpose of granting such exemption is to neutralise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try of Finance, in a question whether goods that are fully exempt from excise/customs duty or are cleared without payment of such duty would be subject to education cess, clarified that the education cess is leviable at the rate of 2% of the aggregate of the duties of excise/customs levied and collected. If goods are fully exempted from excise duty or customs duty or are chargeable to nil rate of duty or are cleared without payment of duty under specified procedure such as clearance bond, there is no collection of duty and, therefore, no education cess would be leviable on such clearances. 22. In view of such clarification by the Government and in view of our conclusions hereinabove that against an import made under the DEPB scheme, of the goods which are fully exempt from payment of customs duty and therefore no customs duty is levied and collected, the education cess at the prescribed rate also cannot be levied. 23. We are not unmindful of the decision of Madras High Court in the case of Tanfac Industries Ltd., vs. Asstt. Commr. of Cus., Cuddalore reported in 2009 (240) E.L.T. 341 . In the said case, in the background of interest on warehoused goods where such demand of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of benefit from one being of exemption. 26. Respondents, however, have contended that Education Cess is not exempt under Notification No.5/2002 and the importer therefore cannot pay the same on imports made under the DEPB scheme. We may recall that under the impugned clarificatory circular, Government has provided that such Education Cess will also be adjusted against credit in the DEPB scrip. If Education Cess is not part of the exemption as contended by the respondents, how can it be adjusted against the credit in DEPB scrip by enforcing the condition of the Exemption Notification? This to our mind is a legal fallacy. 27. Under the circumstances, the impugned circular insofar as it pertains to DEPB scrip, is held to be invalid and contrary to section 81 read with section 84 of the Finance Act, 2004 and is hereby quashed and set aside. 28. The impugned duty demands, were even otherwise made without issuing any show-cause notice or adjudication. Even on such grounds, the notices are liable to be quashed. We hereby do so. 29. Before closing, however, we would like to clarify two aspects. Firstly, with respect to those items whose imports under DEPB scheme enjoy only pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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