Asian Peroxides Ltd Vs Commissioner of Central Excise & Service Tax (CESTAT Hyderabad)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, examined an appeal challenging an order that had upheld duty demand and penalty against a manufacturer engaged in producing hydrogen peroxide. The dispute concerned the admissibility of CENVAT credit on Countervailing Duty (CVD) and Special Additional Duty (SAD) paid on imported goods through debit of DEPB (Duty Entitlement Pass Book) scrips instead of cash payment.
The department argued that credit was not admissible for SAD paid through DEPB scrips, relying on Notification No. 89/2005-Cus and CBEC Circulars. It contended that only duties equivalent to excise duty under Section 3(1) of the Customs Tariff Act were eligible for credit and that SAD had to be paid in cash. The department also questioned whether the DEPB licenses were issued under the applicable policy framework.
The appellant contended that CENVAT credit was permissible on duties paid through DEPB scrips, relying on provisions of the EXIM Policy and various circulars and judicial decisions. It was argued that there was no requirement that duties must be paid in cash for credit eligibility and that all relevant details had been disclosed, making invocation of the extended limitation period unjustified.
The Tribunal identified the core issue as whether credit could be availed for CVD and SAD paid by debiting DEPB scrips. It noted that earlier provisions restricting such credit under the EXIM Policy 2002–07 had been deleted by amendment on 28.01.2004. The subsequent EXIM Policy 2004–09 explicitly allowed adjustment of additional customs duty paid through DEPB towards CENVAT credit or drawback.
The Tribunal observed that the circular relied upon by the department related to schemes other than DEPB and therefore was not applicable. It also referred to another circular clarifying that duty debited through DEPB could be taken as CENVAT credit.
Judicial precedents cited by the appellant were considered, including decisions holding that credit is admissible even when duty is paid through DEPB and not in cash. The Tribunal noted that the appellant’s licenses were issued during a period when amended policy provisions were applicable.
On this basis, the Tribunal held that there was no restriction on availing credit for CVD and SAD paid through DEPB scrips. It found that the denial of credit was not justified and that the department’s reliance on certain circulars was misplaced.
Accordingly, the Tribunal set aside the order passed by the Commissioner (Appeals) and allowed the appeal, holding that the appellant was entitled to CENVAT credit on duties paid through DEPB scrips.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
M/s Asian Peroxides Ltd (hereinafter referred to as the appellant) are in appeal against OIA dt.15.05.2013, whereby, the Commissioner (Appeals) has upheld the orders passed by the adjudicating authorities demanding duty and also imposing penalty (impugned order).
2. The brief facts of the case are that the appellants are engaged in manufacture of Hydrogen Peroxide and were also, inter alia, availing credit of Customs Duty, Counter Vailing Duty (CVD) and Special Additional Customs Duty paid on import of goods. The appellant availed Cenvat credit on Special Additional Duty (SAD) imposed under section 3(5) of Customs Tariff Act (CTA), 1975, which was adjusted against various licenses issued to them under DEPB schemes. The department felt that Notification No. 89/2005-Cus dt.04.10.2005 provided only for taking credit of duty paid as CVD equivalent to Central Excise Duty leviable under section 3(1) of CTA and not SAD adjusted against licenses. The department also relied on CBEC Circular No.20/2006-Cus dt.21.07.2006, which clarified that import made against DFEC under Notification No.51/2003-Cus dt.01.04.2003 applies also to the cases of import made against DEPB license and therefore, the exemption was limited to BCD and CVD only and hence Special CVD has to be paid in cash and no credit can be availed on the Special CVD by debiting DEPB scrips. Further, CBEC Circular No.59/2004 dt.21.10.2004 clarified that Additional Customs Duty paid through debit under DEPB shall be allowed only with respect to licenses issued under the new Foreign Trade Policy (FTP) and that the appellant had not been able to establish that DEPB scrips were issued under old policy or new policy.
3. Learned Advocate for the appellant has relied on various provisions under Import Export Policy 2002-07 (old policy) as well as Circular No.59/2004-Cus dt.21.10.2004 and various other circulars in support that they were entitled to take credit in respect of CVD and SAD paid by way of debiting the DEPB scrips. She has also contested that extended period of limitation is not invokable as they had disclosed everything about taking of credit in respect of SAD paid and that there was no requirement for them to mention whether the duties were paid in cash or otherwise. She has also relied on various judgments, inter alia, including judgment of jurisdictional High Court in the case of CCE, Hyderabad-IV Vs RCC Sales (P) Ltd [2012 (281) ELT 682 (AP)]. She has also submitted that extended period cannot be invoked as the issue is that of interpretation. She has also relied on various judgments in this regard as under.
a. CCE Vs MTZ Polyfilms Ltd [2010 (256) ELT 539 (Guj)]
b. UOI Vs Bharat Aluminium Co Ltd [2016 (344) ELT 1153 (Chhattisgarh)]
4. She has further submitted a statement showing that the licenses were issued in terms of prevailing policy starting from 04.09.2007 to 18.08.2008.
5. Learned AR, on the other hand, has reiterated the findings of the Commissioner (Appeals).
6. Heard both sides and perused the records.
7. We find that the core issue to be decided in this matter is whether the appellants could have taken credit in respect of CVD and SAD paid by way of debiting of DEPB scrips and not in cash or otherwise. The department has mostly relied on the provisions of Para 4.3.5 of Import Export Policy 200207 (old policy), wherein, there is a provision that in case where the Additional Customs Duty is adjusted from DEPB, no benefit of Cenvat credit/ drawback shall be admissible. The department has also relied on Circular No.59/2004 dt.21.10.2004, which provided that Additional Customs Duty paid through debit under DEPB shall be allowed only with respect to licenses issued under new FTP. The department has also relied on CBEC Circular No.20/2006-Cus dt.21.07.2006, which clarified that Special CVD cannot be paid through the scrips issued under DFCE scheme. Learned Advocate has contested that the reliance of the department placed on the above circulars is not correct inasmuch as that firstly, Circular No.18/2006 dt.05.06.2006 clarified that SAD paid by debiting DEPB scrips can be availed as credit. Moreover, reliance on Circular No.20/2006 is also not correct as this clarification was with reference to Notification No.53 & 54/2003-Cus and not under DEPB scheme under Notification No.89/2005-Cus. On the contrary, Rule 3 of Cenvat Credit Rules (CCR), clearly provides for availing Cenvat credit of SAD levied under section 3(5) of CTA, whereas, Circular No.20/2006 deals with restrictions where section 3(1) of CTA is involved. She has further argued that CCR does not provide that for the purpose of availing credit the duty must be paid only in cash and that duty paid through other means and schemes cannot be taken as credit. Therefore, once the SAD is paid by adjustment in the scrips issued under DEPB scheme, which has been levied in terms of section 3(5) of CTA, the same would be available as Cenvat credit. The reliance has been placed her on various judgments, inter alia, as under.
a. CCE, Hyderabad Vs Aurobindo Pharma Ltd [2010 (261) ELT 594 (Tri-Bang)]
b. CCE, Hyderabad-IV Vs RCC Sales (P) Ltd
c) CCE, Ludhiana Vs Neel Kanth Rubber Mills [2010 (254) ELT 203 (P&H)]
8. We find that the licenses have been issued during the period September, 2007 to March, 2009. During this period, both EXIM policy 2002-07 and EXIM policy 2004-09 were in operation. As per Para 4.3 of EXIM policy 2002-07, there was a provision that in case where the Additional Customs Duty is adjusted from DEPB, no benefit of Cenvat credit/ drawback shall be admissible. However, with an amendment on 28.01.2004, this provision was deleted from Para 4.3.5. Therefore, we find that there is no such explicit restriction for not taking credit if the payment has not been made in cash in terms of prevailing EXIM policy for the period post amendment i.e., 28.01.2004. We, further, note that the EXIM policy 200409 at Para 4.3.5 provides that Additional Customs Duty/Excise Duty paid in cash or through debit under DEPB shall be adjusted as Cenvat credit or duty drawback as per Rules framed by the Department of Revenue. Therefore, as per this provision, Cenvat credit is admissible even if the Additional Customs Duty is paid by way of debit under DEPB. We have also perused the various notifications and circulars relied upon by the department for denying the credit in respect of SAD/CVD paid by way of debiting the DEPB scrips. While it is a fact that Circular No.20/2006 (supra) clarifies that Special CVD cannot be paid through debiting the scrips issued under said scheme, however, this clarification is in relation to DFCE scheme issued under Notification No.53/2003-Cus dt.01.04.2003 and 54/2003-Cus dt.01.04.2003 and not for DEPB scheme. We have also perused the Notification No.89/2005-Cus dt.04.10.2005, wherein it has been prescribed that the importer will be entitled to avail drawback or Cenvat credit of Additional Customs Duty levied under section 3 of CTA against the amount debited in the Duty Entitlement Pass Book (DEPB). Para 4 of the Circular No.18/2006-Cus dt.05.06.2006 is cited below for ease of reference.
“4. As regards the issue raised as to whether the duty debited through DEPB, DFCE, Tartget Plus etc. schemes would be eligible for Cenvat benefit or drawback facility by the licence holder, it has been made clear in the Finance Minister’s Budget Speech that full credit of the 4% special CVD will be allowed to manufacturers of excisable goods. Therefore, it is clarified that the 4% CVD duty debited in DEPB, DFCE, Target Plus etc. certificates may be allowed to be taken back as drawback (brand rate). It may be mentioned here that under the Foreign Trade Policy, additional customs duty (CVD) debited in DEPB scrips/ certificates issued under reward schemes is allowed to be taken as Cenvat/ drawback.”
9. We have also perused certain relied upon case laws by the appellant. In the case of RCC Sales (P) Ltd (supra), the Hon’ble High Court of AP examined similar issue and, inter alia, upheld the order of the Tribunal holding that the manufacturer of excisable goods is eligible to take credit when the duty is debited in DEPB, DFCE, Target Plust, etc. In the case of Aurobindo Pharma Ltd (supra), similar issue of admissibility of Cenvat credit of SAD discharged on import using DEPB credit was examined by the Coordinate Bench. Para 4 of the order is cited below for ease of reference.
“4. The credit availed pertains to SAD levied in terms of sub-section (5) of Section 3 of the Customs Tariff Act. Therefore, as per the above provision in the Notification, the respondents cannot be denied the Cenvat credit equivalent to the DEPB credit debited towards SAD levied under sub-section (5) of Section 3 of the Customs Tariff Act. We also find that the Commissioner (Appeals) relied on the Circular No. 18/2006-Cus., dated 5-6-2006 in F. No. 605/44/2006-DBK, para 4 of which reads as follows:
“As regards the issue raised as to whether the duty debited through DEPB, DFCE, Target Plus etc, schemes would be eligible for Cenvat benefit or draw back facility by the licensed holder, it has been made clear in the Finance Minister’s Budget speech that full credit of the 4% Special CVD will be allowed to manufacturers of excisable goods. Therefore it is clarified that the 4% CVD duty debited in DEPB, EFCE, Target Plus etc, certificates may be allowed to be taken back a drawback (brand rate). It may be mentioned here that under the Foreign Trade policy, additional customs duty (CVD) debited in DEPB scrips/certificates issued under reward schemes is allowed to be taken as cenvat/draw back”.”
10. In fact, in the case of Neel Kanth Rubber Mills (supra), the Hon’ble High Court of Punjab & Haryana, inter alia, held that even for the period prior to the amendment i.e., 28.01.2004, there was no provision that the importer would not be able to take credit if the said payment has been made by way of debit to DEPB. We have also perused the order passed by this Bench in the case of Laser Shaving (I) P Ltd Vs CCE, Hyderabad [2016 (344) ELT 479 (Tri-Hyd)], wherein similar issue for the period September, 2008 to June, 2011 was examined and the Single Member Bench held that denial of credit on the said ground was unjust. In arriving at the conclusion, the learned Member relied on various case laws of Coordinate Benches. Para 7 of the order is cited below for ease of reference.
“7. The Tribunal in the case of Seshasayee Paper and Boards Ltd. v. CCE, Salem [2007 (217) E.L.T. 562 (Tri.-Chennai)] and [2008 (223) E.L.T. 616 (Tri.-Chennai)] had occasion to consider the issue whether the importer was entitled to take Cenvat credit of the amount debited in DEPB towards payment of CVD. The Tribunal rejecting the contention of the Revenue that as per Cenvat Credit Rules, what was allowed was only credit of duty ‘paid in cash’, held that the importer was eligible for credit on the duty paid by debit in DEPB. Similar view was taken in International Tobacco Co. Ltd. v. CCE, Ghaziabad [2013 (297) E.L.T. 131 (Tri.-Del.)]. The Hon’ble High Court of Madras in the case of CCE, Chennai-1 v. SPIC Ltd. [2014 (305) E.L.T. 484 (Mad.)] held that the assessee is eligible for the benefit of Modvat Scheme even if the additional customs duty is paid by adjustment in DEPB Scheme.”
11. Therefore, in view of the above, we find that there is no infirmity in availing Cenvat credit by the appellant in respect of CVD/SAD paid by way of debiting the DEPB scrips. Moreover, the reliance of the department that the said relaxation was only in respect of amended provisions in terms of new FTP i.e., EXIM policy 2004-09 w.e.f. 28.01.2004 is incorrect. We find that the appellants have submitted that all the licenses were issued in terms of amended policy and not in terms of old policy and therefore, on this count also, the credit cannot be denied. We find that the reliance placed by the appellant on the judgment of Hon’ble High Court of Punjab & Haryana in the case of Neel Kanth Rubber Mills (supra) is relevant, wherein it was held that any debit under DEPB post amendment to the EXIM policy would be eligible for Cenvat credit irrespective of the policy being prior to amendment or post amendment under which the licenses have been issued. Para 10 of the judgment is cited below for ease of reference.
“10. The main argument of the learned counsel for the revenue that since the licence in the present case was issued under the previous policy and during that period, the Cenvat credit was not admissible in CVD paid, otherwise than in cash, so, the assessee is not entitled to avail the Cenvat credit, is not only devoid of merit but misplaced as well, because the EXIM Policy amended, vide Notification dated 28-1-2004 and Notification No. 96 dated 17-9-2004, postulate that “an importer shall be entitled to avail the Cenvat credit of additional duty leviable under Section 3 of the Act against the amount debited in DEPB. There is no such condition in the indicated notifications that the debits made in DEPB, the licenses issued under the Foreign Trade Policy only would be eligible for credit and the debits made in DEPB issued under the previous policy will not be eligible for credit. It means, the assessee was entitled to claim the benefit in this relevant connection.”
12. Therefore, the impugned order passed by the Commissioner (Appeals) is set aside and the appeals are allowed.
(Pronounced in the Open Court on 13.03.2026)
