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TMI Blog2013 (6) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... B scheme, the entire amount of SAD would have to be paid by the importer. - Decided in favor of assessee. - Special Civil Application No. 13813 of 2006 - - - Dated:- 25-7-2012 - Akil Kureshi and Harsha Devani, JJ. Shri Paritosh Gupta with Paresh M. Dave, for the Petitioner. Shri R.J. Oza and Ms. Amee Yajnik, for the Respondent. JUDGMENT The petitioners have challenged a Circular No. 18/2006, dated 5-6-2006 issued by the Central Government. They have consequently prayed for a permanent prohibition against the respondents from levying and recovering Special Additional Customs Duty under Section 3(5) of the Customs Tariff Act, 1975 from the petitioners on their imports of Crude Palm Oil, Vanaspati Ghee and Fatty Acid imported at Kandla Port and Inland Containers Depot, at Ahmedabad (ICD). 2. The facts may be noted at the outset. 2.1 The petitioner No. 1 is a company registered under the Companies Act, 1956 and the petitioner No. 2 is its Chairman and Managing Director. The company is engaged in manufacturing various goods and is also involved in exporting such finished products to various foreign countries. For the purpose of manufacturing its goods, the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder : Sr. No. Chapter, heading, sub-heading or tariff item of the First Schedule Description of goods Standard rate 1 2 3 4 1 Any Chapter All goods which are exempt from the whole of the duty of customs leviable thereon or in case of which Free or Nil rates of duty of customs are specified in column (4) under the First Schedule of the Customs Tariff Act, 1975 (51 of 1975) and which are also exempt from the whole of additional duty of customs leviable thereon under sub-section (1) of Section 3 of the said Act, or on which no amount of the said additional duties of customs is payable for any reason. Nil 4. The case of the petitioners is that by virtue of notifications issued from time to time by the Central Government, all goods other than edible oils are exempt from payment of customs duty and additional customs duty which are imported under DEPB scheme. In case of edible oils, such exemption from payment of basic customs duty and additional customs duty is limited to 50% of the applied rates of duty. The petitioners have produced several notifications issued by the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hennai, Nhava Sheva, Paradeep, Tuticorin, Visakhapatnam, Kakinada, Magdalla, Sikka, Pipavav, Dahej, Mundra, Nagapattinam, Okha, Dharamtar, Jamnagar and Muldwarka or any of the airports at Ahmedabad, Bangalore, Mumbai, Kolkata, Coimbatore, Delhi, Jaipur, Varanasi, Srinagar, Trivandrum, Hyderabad, Chennai, Bhubaneshwar, Nagpur and Cochin or any of the Inland Container Depots at Bangalore, Coimbatore, Delhi, Gauhati, Kanpur, Pimpri (Pune), Pitampur (Indore), Moradabad, Ludhiana, Hyderabad, Nagpur, Agra, Faridabad, Jaipur, Guntur, Varanasi, Jodhpur, Salem, Tirupur, Singanalur, Waluj, Surat, Malanpur, Nasik, Rudrapur (Nainital), Kota, Udaipur, Daulatabad (Wanjarwadi and Maliwada), Dighi (Pune), Vadodara, Ahmedabad, Bhiwadi, Madurai, Jallandhar, Meerut, Bhilwara, Pondichery, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi), Chheharata (Amritsar), Karur, Miraj, Rewari, Bhusawal, Jamshedpur, Surajpur and Dadri or through the Land Customs Station at Ranaghat, Singhabad, Raxaul, Jogbani, Nautanva (Sonauli), Petrapole and Mahadipur : Provided that where the expiry of the Duty Entitlement Pass Book falls before the last day of the month, such Duty Entitlement Pass Book shall be deemed to be vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he customs Notification issued under all these schemes. Therefore, when goods are imported under any of these schemes, the exemption from duties in terms of the respective customs notifications shall only be available if the element of 4% special CVD is debited in the duty scrips/entitlement certificates. In this connection, attention is invited to Ministry s Circular No. 5/2005-Cus., dated 31-1-2005 whereunder it was clarified that even though imports under these schemes are governed by an exemption notification, the fact remains that in case of such imports, the customs duties are required to be debited in the duty entitlement certificates issued under these schemes. In the case of import of goods under DFRC scheme, the element of 4% CVD shall be payable because, the Notification grants exemption from basic duty only. 6.2 Counsel pointed out that the circular makes a reference to the Ministry Circular No. 5/2005, dated 31-1-2005 which pertains to payment of Education Cess on the imports being made by an importer under the DEPB scheme, which circular this Court has quashed in the judgment dated 21-6-2012 passed in Special Civil Application No. 11635 of 2005. 6.3 Counsel relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption from the whole of the duty of customs and the additional duty of customs, unless of course free or Nil rates of duties are specified for such duties on such products. When the exemption is not total but only partial, such condition would not be satisfied. In that view of the matter, the petitioners cannot claim exemption from payment of SAD on the imports of edible oils. 11. With respect to goods other than edible oils, under Notification No. 45/2002, there is total exemption from payment of basic as well as additional customs duty on import made under DEPB scheme. Such exemption, of course, is conditional. The stand of the respondents has been that there is no exemption from payment of customs duty, but that the importer pays such duties by surrendering credit lying in the scrip. 12. In context of liability of an importer to pay Education Cess on goods imported under DEPB scheme, we had occasion to examine the nature of DEPB scheme, as also the contention of the revenue that under such scheme, the customs duty is not waived. In the process, we had also examined the legality of a circular dated 31-1-2005 issued by the Government of India clarifying such position. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y apply for credit, as a specified percentage of FOB value of exports made in freely convertible currency. The credit shall be available against such export products and at such rates as may be specified by the Director General of 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 v. 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, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme under which the exporter is given the facility of utilizing the credits in the DEPB scrips for the purpose of adjustment against the customs duty liability on the goods imported for the ultimate purpose of export on value 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 License 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 neutralize the incidence of customs duty on the import component of the export product. It further provides that such neutralization shall be provided by way of grant of duty credit against the export pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of customs duty. This would further go to show that while no customs duty is paid, there would be no question of availing Modvat credit on such duty. 21. We may notice that vide 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. 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 Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption is, of course, subject to fulfilment of certain conditions. One of the conditions includes that of adjustment of credit in the DEPB scrip. This, however, is merely procedural in nature and would not change the nature 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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