Commissioner of Central Excise Vs Computer Graphics Limited (Madras High Court)
The Madras High Court considered a Civil Miscellaneous Appeal filed by the Revenue against the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which had set aside the demand of Central Excise duty raised against the respondent company. The respondent, a public limited company, was engaged in converting jumbo rolls of photographic films into rolls of different sizes through cutting and slitting, and also traded imported ready-to-use unexposed photo colour film rolls packed in individual plastic canisters. A show cause notice dated 29.08.2006 proposed to treat the activity of placing imported unexposed colour film rolls packed in plastic canisters into printed cartons bearing brand name and MRP as manufacture and demanded Central Excise duty for the period from 01.03.2003 to 31.08.2004, along with interest and penalty by invoking the extended period of limitation. The Original Authority confirmed duty of Rs.20,37,33,174 under Section 11A(2) of the Central Excise Act, imposed an equal penalty under Section 11AC and levied interest under Section 11AB.
Before the Tribunal, the respondent contended that its activity amounted only to trading and not manufacture, that the demand was revenue neutral because it was entitled to CENVAT credit on imported and indigenous inputs, and that the extended period of limitation was not invocable as it acted under a bona fide belief. The Tribunal accepted the plea of revenue neutrality, relying upon Commissioner of Central Excise & Customs, Vadodara Vs. Narmadha Chemataur Pharmaceuticals Limited, held that the demand was time-barred and that the admissible CENVAT credit exceeded the duty demand, and consequently set aside the entire demand. The Revenue challenged this decision before the High Court.
The Revenue submitted that the Tribunal had erred in holding the demand to be barred by limitation despite deliberate withholding of information regarding manufacturing activity and the respondent’s voluntary registration under Central Excise only from 01.03.2006. It further contended that revenue neutrality was incorrectly accepted because CENVAT credit could not be availed where additional customs duty had been paid through debit of DEPB scrips and because the respondent had not established the quantum of admissible credit. It also argued that penalty and interest remained leviable even if the demand was revenue neutral.
The respondent raised a preliminary objection that the appeal before the High Court was not maintainable under Sections 35G(1) and 35L of the Central Excise Act because the dispute related to excisability and rate of duty. It also submitted that the Tribunal’s finding on revenue neutrality was sustainable and that, under the applicable Foreign Trade Policies, CENVAT credit on additional duty debited through DEPB scrips was available for the relevant periods.
The High Court rejected the preliminary objection regarding maintainability. It observed that although the respondent had initially challenged the finding that its activity amounted to manufacture, it had consciously confined its submissions before the Tribunal to the alternate plea of revenue neutrality. Consequently, the finding of the Original Authority that the activity amounted to manufacture under Section 2(f)(iii) had attained finality, and the issue of excisability no longer survived. The Court therefore held that the appeal was maintainable and found the authorities relied upon by the respondent inapplicable on the facts.
On revenue neutrality, the High Court held that the Tribunal’s findings were unsustainable. It observed that, for the period up to 31.08.2004, the Tribunal had not independently determined whether the respondent was entitled to CENVAT credit on additional customs duty paid through DEPB scrips. Referring to the decision in Mohan Breweries & Distilleries Ltd. Versus Commr. of C.Ex., Pondicherry, the Court held that, for the period up to 31.08.2004, CENVAT credit was not available where duty had merely been paid by debit of DEPB scrips instead of cash. For the subsequent period, although the Foreign Trade Policy permitted such credit, the Tribunal had not recorded any factual finding regarding the quantum of admissible CENVAT credit. The Court held that the respondent, having pleaded revenue neutrality, bore the burden of producing material to establish that the admissible credit equalled or exceeded the duty demand. In the absence of such determination, the Tribunal’s conclusion on revenue neutrality was held to be untenable and perverse.
With respect to limitation, the High Court held that the Tribunal had dealt with the issue in a cursory manner. The Original Authority had recorded detailed findings that the respondent had deliberately suppressed material facts with the intention to evade payment of duty, that the plea of bona fide belief was not established, and that the conditions for invoking the extended period under Section 11A were satisfied. The High Court found no valid reason for the Tribunal to overturn these findings and held that invocation of the extended period of limitation was justified. Accordingly, the Tribunal’s finding that the demand for the period prior to 31.08.2004 was time-barred was set aside.
Regarding penalty and interest, the Court noted that the Original Authority had, on the basis of statements of the respondent’s officials and the material on record, found contraventions of Rules 4, 6, 8, 10, 11 and 12 of the Central Excise Rules, 2002, and imposed penalty under Section 11AC read with Rule 25 and interest under Section 11AB. Finding no perversity in those factual findings, the High Court declined to interfere. It answered all substantial questions of law in favour of the Revenue, allowed the appeal, and set aside and reversed the CESTAT’s Final Order. Subsequently, on a mentioning by the Revenue, the Court corrected an inadvertent typographical error in paragraph 27 of its earlier judgment by directing that the word “confirmed” be replaced with “set aside and reversed” while issuing the fresh judgment copy.
Cases Discussed
- Alupro Building Systems Pvt. Ltd. Versus Commissioner of Central Excise, Bangalore – II (Supreme Court), (2026) 42 Centax 456 (SC)
- Commr. of S.T. Kolkata versus Calcutta Industrial Supply Corporation (Calcutta High Court), 2018 (19) GSTL 444 (Cal.)
- Commissioner of C. Ex., Pondicherry versus CESTAT, Chennai (Madras High Court), 2016 (340) E.L.T. 53 (Mad.)
- Mohan Breweries & Distilleries Ltd. Versus Commr. Of C.Ex., Pondicherry (Madras High Court), 2015 (325) E.L.T. 42 (Mad.)
- Commissioner of Central Excise v. Precision Pipes (Allahabad High Court), 2014 (302) E.L.T. 184
- Commissioner of Central Excise v. Spic Limited (Madras High Court), 2014 (305) E.L.T. 484
- Commissioner of Central Excise & Customs, Vadodara Vs. Narmadha Chemataur Pharmaceuticals Limited (Supreme Court), 2005 (179) E.L.T. 276 (SC)
- M/s. ESSAR Steels Limited Vs. Commissioner of Central Excise, Vishakhapatnam (CESTAT Larger Bench), 2004 SCC OnLine WEB CESTAT 2331 : 2004 (173) E.L.T. 239 (LB)
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
(1) The 1st respondent is a Public Limited Company incorporated under the Companies Act, 1956, and engaged inter alia in the conversion of Jumbo Rolls of Photographic Films into rolls of different sizes as per the customers’ specifications. The conversion, according to the 1 St respondent, is effected by the process of cutting and slitting carried out on the jumbo rolls. The 1″ respondent is also engaged in trading of imported ready to use unexposed photo colour film rolls packed in individual plastic canisters which are marketable as such. While so, a show cause notice dated 29.08.2006, was issued by the Commissioner of Central Excise, Chennai-II, seeking to treat the process of placing all imported ready to use unexposed colour film rolls packed in plastic canisters in printed cartons with brand name and MRP as a process of manufacture and a demand for Central Excise Duty, on the sale of the subject goods during the period from 01.03.2003 to 31.08.2004, was made. In the impugned show cause notice, the duty was demanded for the entire period along with interest and penalty by invoking the extended period of limitation. The 1st respondent submitted his reply to the show cause notice on 25.10.2006, submitting inter alia that the process undertaken by it, did not amount to manufacture and that the duty demanded could not be sustained since the issue was completely revenue neutral. The 1st respondent further contended that the demand was not sustainable, since the extended period of limitation was not invocable in the facts of the case. The original authority, namely, the Commissioner of Central Excise, Chennai-II, vide order dated 28.11.2006, rejected the 1st respondent’s contentions and confirmed the entire amount of duty of Rs.20,37,33,174/- under Section 11A[2] of the Central Excise Act and imposed equal penalty under Section 11AC of the Central Excise Act. The authority also imposed interest on duty under the provisions of 11AB of the Act. Aggrieved by the order of the Original Authority, the 1″ respondent preferred an appeal before the Appellate Tribunal [CESTAT], raising several grounds including that the activity of the Pt respondent was purely a trading activity and not one of manufacture. The Pt respondent also raised a plea of revenue neutrality by submitting that, if the said goods are held to be dutiable, the 1″ respondent would be entitled to the benefit of CENVAT credit on inputs. The Pt respondent contended that the total credit including credit of CVD paid for the imported film rolls and credit of excise duty paid on indigenously procured inputs would exceed the amount of the duty demanded in the impugned order. The 1St respondent also contended that a major portion of the duty demanded for the period from March 2003 to February 2006, in the show cause notice dated 29.08.2006, was beyond the period of limitation. The Pt respondent further contended that the extended period of limitation was not invocable, since the clearance of the goods in question were made in a bona fide belief that the activity did not amount to manufacture. The Tribunal, relying on the judgment of the Hon’ble Supreme Court, in Commissioner of Central Excise, & Customes, Vadodara Vs. Narmadha Chemataur Pharmaceuticals Limited [2005 (179) E.L.T. 276 (SC)1, observed that during 2004-05 and afterwards, the Pt respondent was entitled to avail CENVAT credit of CVD paid during DEPB on the imported raw material and also to similar credit duty of excise paid on the indigenous raw material, that the demand was time barred and that the total amount on admissible credit exceeded the amount of duty demanded by the Commissioner for the period 2004-05 and 2005-06 resultantly set aside the entire demand by allowing the 1″ respondent’s appeal. Aggrieved by the order of the Tribunal, the Revenue has preferred the above Civil Miscellaneous Appeal.
Substantial Questions of Law and the Contentions of the Appellant:-
(2) In the Civil Miscellaneous Appeal, the appellant raised the following substantial questions of law:-
Whether in the facts and circumstances of the case, the 2nd respondent Tribunal was correct in,
i. deciding the appeal without recording a finding on the applicability or otherwise of a Larger Bench decision of CESTAT and a judgment of the Hon ‘ble Supreme Court relied by the Appellant in the Adjudication Order;
ii. deciding the appeal relying on the Supreme Court judgment rendered in the case of M/s.Narmada Chemataur Pharmaceuticals where the facts are decent;
iii. holding that the demand was barred by limitation of time when there was deliberate withholding of information and voluntary entry into Central Excise net from 01.03.2006;
iv. whether penalty is imposable for violation of rules, even if the demand for duty was revenue neutral; and
v. whether the question of Cenvat credit or revenue neutrality would apply when CVD is paid only by debit DEPB scrips.
(3) The learned counsel for the appellant/Revenue submitted that the excitability of the subject goods was not an issue, since the categorical finding of the Original Authority, that the activity carried on by the Pt respondent amounted to manufacturing activity in terms of Section 2(f) (iii) of the Central Excise Act, was left undisturbed by the tribunal. The learned counsel submitted that the Tribunal reversed the order of the Appellate Authority, only on the alternate plea of the Pt respondent that the demand of duty was unsustainable on account of revenue neutrality. The learned counsel further submitted that the finding of the Tribunal that the demand was barred by limitation was erroneous, in view of the deliberate withholding of information as to the manufacturing activity carried on by the 1st respondent during the relevant period and its subsequent voluntary entry into the Central Excise net from 01.03.2006. The learned counsel submitted that the finding on revenue neutrality was unsustainable, since the Tribunal failed to note that there was no question of CENVAT credit, when the CVD was paid only on debit of DEPB scrips and for failure to produce the necessary evidence in support of such credit. The learned counsel finally submitted that assuming that the demand for duty was revenue neutral, even otherwise, the Revenue was entitled to impose penalty and interest for violation of rules.
Response by the 1st Respondent:-
(4) The learned counsel for the 1″ respondent, apart from addressing counter arguments, also filed written submissions. The learned counsel for the 1″ respondent admitted that the only ground of challenge was that the issue could not be treated as revenue neutral, since the customs duty and additional duty were paid on debiting of DEPB scrips and hence, ineligible for CENVAT credit. The learned counsel further submitted that the question of limitation and revenue neutrality would be relevant, only if the subject goods are held to be emerging from process of manufacture and since the Revenue gave up the primary case on merits, the appeal was liable to be dismissed in limini.
(5) The learned counsel for the 1″ respondent submitted that the appeal is not maintainable as there is a statutory bar against filing an appeal before this Court where the order of Tribunal under challenge, involves a question of, among other things, determination of Rate of Duty. The learned counsel relied on Section 35G(1) and 35[L] of the Central Excise Act, in support of the said contention. The learned counsel submitted that the issue of the excisability of the goods is intrinsically connected with the Rate of Duty for the purpose of assessment and therefore as per judgment of the Hon’ble Supreme Court in a. Alupro Building Systems Pvt. Ltd. Versus Commissioner of Central Excise, Bangalore — II (2026) 42 Centax 456 (SC) [27-05-2026]; b. Commr. of S.T. Kolkata versus Calcutta Industrial Supply Corporation — 2018 (19) GSTL 444 (Cal.) [04-10-2018]; c. Commissioner of C. Ex., Pondicherry versus CESTAT, Chennai — 2016 (340) ELT 53 (Mad.) [13-06-2016], the appeal before this Court is not maintainable. The learned counsel submitted that even the issue of revenue neutrality which is raised as an alternate plea, is related to the levy of duty on the final product, a sin qua non for availment of CENVAT credit. The learned counsel submitted that since the Revenue gave up its primary issue relating to excisability of the subject goods, the allied issue of revenue neutrality does not survive for consideration in the appeal. The learned counsel further submitted that as per the Foreign Trade Policy of 2004-05, the additional duty of debit in DEPB scrips was eligible for CENVAT credit and same was continued in Foreign Trade Policy in 2005-06. The learned counsel submitted that as per Foreign Trade Policy of 2003-04, the CENVAT credit, by adjustment of DEPB scrips was not permitted for the period prior to 2003, only. The learned counsel submitted that it is not open to the Revenue to raise an issue with regard to revenue neutrality for the period after 2004-05, since it was not disputed before the Tribunal.
Findinks:-
(6) We have heard both the learned counsels and perused the materials placed on record.
Maintainability:
(7) The main contention of the learned counsel for the Pt respondent is that the appeal is not maintainable in view of the revenue’s plea that the issue of excisability of the subject goods was not raised by it. According to the learned counsel the issue of excisability of goods is intrinsically connected with the Rate of Duty for the purpose of assessment and in view of the statutory bar on filing an appeal before this Court under Section 35G(1) and 35[L] of the Central Excise Act, 1944, the appeal is not maintainable. In support of the said submission, the learned counsel relied on the following judgments:
a. Alupro Building Systems Pvt. Ltd. Versus Commissioner of Central Excise, Bangalore — II (2026) 42 Centax 456 (SC) [27-05-2026] ;
b. Commr. of S.T. Kolkata versus Calcutta Industrial Supply Corporation — 2018 (19) GSTL 444 (Cal.) [04-10-2018] ;
c. Commissioner of C. Ex., Pondicherry versus CESTAT, Chennai — 2016 (340) ELT 53 (Mad.) [13-06-2016]
(8) Upon a perusal of the materials on record, we find that the issue of excisability of the subject goods was specifically raised by the 1″ respondent itself, before the Original Authority. The Original Authority gave a specific finding that the goods were excisable, since the activity of the Pt respondent amounted to manufacture as contemplated under Clause [iii] of Section 2(f) of the Act. It was the 1 respondent who raised the alternate plea of revenue neutrality, and even the said plea was rejected by the Original Authority on the ground that the 1″ respondent was not entitled to avail the benefit of MODVAT since the payment was made through DEPB scrips. The Original Authority further found that the extended period of limitation was applicable, since there was suppression of facts with an intention to evade payment of duty and further, the 1″ respondent had not made serious resistance or challenge to the same. The Original Authority rejected the feeble attempt of the Pt respondent to attribute the Department with knowledge of its trading activities on the ground that it was a hollow statement made without any material. The plea of bona fide belief was also rejected on the ground that the law governing the definition of “manufacture” as contained in Section 2(f)(iii) remained unchanged and further the records revealed that with effect from 01.03.2006, the Pt respondent voluntarily commenced the payment of duty on the subject goods. On the issue of penalty, the Original Authority found that there was gross violation of Rules 4, 6, 8, 10, 11 and 12 of the Central Excise Act, 2002, and that the 1″ respondent by its positive acts, had evaded excise duty, contravening the provisions of the Act and Rules and hence, held it liable for deterrent penalty in terms of the proviso to Section 1 lAC of the Act read with Rule 25 of the Central Excise Rules, 2002. The Pt respondent filed appeal against the order of the Original Authority raising several grounds, including that none of the requirements of Section 2(f)(iii) were satisfied with regard to the trading activity carried out by it and therefore the activity carried out by it was erroneously construed as “manufacture” and alternately pleaded the issue of revenue neutrality.
(9) Having raised the issue of “manufacture” and “excisability” of the subject goods, in its grounds of appeal before the Tribunal, for the reasons best known to it, the Pt respondent did not address the primary issue of “manufacture” and “excisability”, but confined its submissions to the alternate plea of revenue neutrality.
(10) It is, therefore, evident that the Pt respondent accepted the finding of the Original Authority on the issue of manufacture. This is apparent from the fact that, before the Tribunal, it consciously confined its challenge to the question of revenue neutrality and did not assail the findings of the Original Authority on ‘manufacture’ and `excisability’. Obviously, knowing well that the treatment of the goods imported falls within the definition of ‘manufacture’, hence, excisable. Further, the plea of revenue neutrality could have arisen only on the premise that the subject goods were excisable. Consequently, the findings of the Original Authority on manufacture and excisability, having remained unchallenged, attained finality. In that view of the matter, the revenue is justified in contending before this Court that the excisability of the goods is no longer an issue. In the facts and circumstances of the case, we find that the judgments relied on by the learned counsel for the respondent’s are not applicable. Under the circumstances, we find no merit in the contention of the learned counsel for the appellant that the appeal is not maintainable in view of the provisions of Section 35(g)(1) and 35(1) of the Central Excise Act, 1944.
Revenue Neutrality:
(11) The only issue that survives is admittedly the plea of revenue neutrality. The learned counsel for the Revenue submitted that the 1″ respondent is not entitled to CENVAT credit, since the CVD was paid only by debit of DEPB scrips and not in cash. The learned counsel, in support of the said contention, relied on the judgment of the Division Bench of this Court in the case of Mohan Breweries & Distilleries Ltd. Versus Commr. Of C.Ex., Pondicherry, reported in 2015 (325) E.L.T. 42 (Mad.). The learned counsel submitted that in view of the decision of the Larger Bench in the case of M/s.ESSAR Steels Limited Vs. Commissioner of Central Excise, Vishakhapatnam, reported in 2004 SCC OnLine WEB COI CESTAT 2331 : 2004 11731 ELT 239 (LB], CENVAT credit could not be availed for CVD paid on imported goods debited to DEPB scrips upto 31.08.2004 and that, even thereafter the quantum of credit available is not precisely known to conclude whether the credit available was sufficient to cover the duty due. The learned counsel therefore submitted that on the facts of the case, the plea of revenue neutrality was unsustainable.
(12) Countering the learned counsel for the appellant, the learned counsel for the 1st respondent submitted that the judgment in Mohan Breweries and Distilleries case, was not applicable to the facts of the present case as it pertains to a period prior to EXIM policy. The learned counsel further submitted that the Foreign Trade Policy of 2003-04 specifically deleted the clause pertaining to non-availment of CENVAT credit by adjustment in DEPB scrips prior to 2003 and that the Foreign Trade Policy of 200405, in order to bring clarity, specifically provided that additional duty debited in DEPB scrips is available for availment of CENVAT scrips and the same was continued in the Foreign Trade Policy of 2005-06. The learned counsel further submitted that it was not open to the Revenue to raise an issue with regard to revenue neutrality for the period after 200405 not having disputed the same before the Tribunal and therefore, the order passed by the Tribunal is legally sustainable.
(13) We have bestowed our anxious consideration to the rival submissions of the learned counsels.
(14) In the grounds of appeal in the Civil Miscellaneous Appeal, in Ground [g] and [h], the appellant has stated as follows:-
“[g] The decision of the Larger Bench rendered in the case of M/s. ESSAR Steels Limited made it clear that at the relevant point of time [till 31.08.2004] , cenvat credit could not be availed on CVD paid on imported goods debited through DEPB scrips ;
[h] Therefore, there is no question of availing credit of CVD paid on imported film rolls for purpose of discharging central excise duty liability at least upto 31.08.2004. Consequently, the judgment of the Hon’ble Supreme Court rendered in the case of M/s. Narmada Chemataur Pharmaceuticals would not apply to the facts of this case, CESTAT did not even consider the Larger Bench decision of CESTAT in the case of M/s. ESSAR Streels Limited though appellant cited the same in the Adjudication Order.”
(15) From the aforesaid grounds raised, it is clear that the appellant’s stand is that at least upto 31.08.2004, the 1″ respondent was not entitled for CVD credit paid through DEPB scrips on imported film rolls for the purpose of discharging central excise duty liability. It is the contention of the appellant that for the subsequent period, there is no material to quantify the available credit so as to set it off against the duty payable by the 1″ respondent. The Pt respondent, on the other hand contends that in view of the concession on behalf of the Revenue with regard to limitation, the period of dispute stands confined to 2004-05 and 2005-06. We do not understand on what basis the Pt respondent contends that the Revenue/appellant conceded with regard to the limitation for the prior period, i.e., 2003-04.
(16) We find that the impugned order in so far as it relates to the revenue neutrality is palpably perverse. The Tribunal has not given any independent finding, on revenue neutrality for the period upto 31.08.2004, for which period the Pt respondent was admittedly not entitled to CVD paid on imported goods debited through DEPB scrips except for stating that it was time barred. The finding of the Tribunal on revenue neutrality is as follows:
“In the present case, it is not in dispute that, during 200405 and afterwards, the appellants were entitled to avail CENVAT credit of CVD paid through DEPB on the imported raw material. Similar credit of duty of excise paid on indigenous raw material also was, of course, available to them. For the prior period, the demand is evidently hit by time-bar for the reasons stated by learned counsel.”
The Tribunal has failed to note that for the period upto 31.08.2004, the judgment of this Court in Mohan Breweries and Distilleries Limited case, squarely applies.
(17) The issue before the Division Bench of this Court in the Mohan Breweries’ case was whether CENVAT credit could be availed, if the same was paid upon debit entry in passbook entry in DEPB scheme and without paying it in cash.
(18) The Division Bench after referring to EXIM Policy as also the notifications connected therewith, held as follows:
“14. But as pointed out by the learned Standing Counsel for the Revenue, DEPB Scheme was actually introduced in the EXIM Policy, to neutralize the incidence of customs duty on import content of export products. The credit itself is available against exports products. What is refundable under Rule 5 of the Cenvat Credit Rules, 2002, is actually of “such amount” and hence the same can be relatable only to the payment.
15. Though the appellant claimed to have availed the benefit of exemption under Notification No.34/97, and cleared the goods by debiting DEPB, for both customs duty as well as additional customs duty, it is claimed by the respondents that under the relevant Bill of Entry bearing No.45901, dated 25.01.2003, they availed the benefit of exemption Notification No.45/2002, dated 22.04.2002. The Notification No.34/97, dated 07.04.1997 relates to EXIM Policy April, 97-March, 2002. But the Notification No.45/2002 pertains to EXIM Policy April, 2002-March, 2007.
16. According to the respondents, when the Bill of Entry dated 25.01.2003, which is the relevant document specified in Rule 7 of the Cenvat Credit Rules, 2002, did not indicate payment of any duty, no Cenvat Credit can be availed. Therefore, we do not think that the Tribunal committed any mistake in law.
17. Under the Exemption Notifications, if the importers produced DEPB scrip and availed the exemption for clearance of goods, the goods become non-duty paid goods. The value of DEPB scrip, once used, gets extinguished and hence there would be no question of seeking Cenvat credit thereafter.
18. In Commissioner of Central Excise V. Precision Pipes [2014 [302] E.L.T. 184], the Allahabad High Court held that as per para 4.3.5 of the Exim Policy, it was only when the additional customs duty was paid in cash on inputs under DEPB that it could be adjusted against the Cenvat credit or Duty Drawback.
19. As we have indicated earlier, the Commissioner (Appeals) as well as the Tribunal relied upon a Larger Bench decision of the CESTAT in ESSAR Steel Limited V. Commissioner [2004 (173) E.L. T 239] . The said decision is not overruled so far by any High Court. But according to the learned counsel for the appellant, the decision of the Larger Bench was watered down to a great extent by this Court in Commissioner of Central Excise v. Spci Limited [2014 (305) E.L.T. 484] .
20. But a careful look at the decision in Spic would show that the case related to imports made prior to the year 2000. In paragraph 16 of the decision in Spic, the Court pointed out as follows:-
“16. It is no doubt true that under the Scheme available from 1.4.2000, there is a specific prohibition that wherever the additional customs duty is adjusted from DEPB, the assessee would not be entitled to Cenvat/Drawback. However, in the absence of any such specific prohibition for the period prior to 2000, considering the provision under Paragraph 7.25 that a holder of DEPB shall have the option to pay additional customs duty if any, in cash, the provision under Paragraph 7.41 could only be read as recognizing payment in cash too available for adjustment under Modvat Scheme. Thus, in the absence of any restrictive wording, we do no find any justification to deny the benefit of Modvat credit available to a case covered by the credit taken under the Passbook Scheme.”
21. Therefore, after a specific prohibition was introduced under the Scheme from 1.4.200 onwards, it is not possible for the appellant to claim the benefit in respect of the Bill of Entry of the year 2003. Therefore, the decision in Spic, even if it is taken to water down the decision of the Larger Bench in ESSAR Steel Limited, does so only in respect of the period prior to 2000. Therefore, the decision of this Court in Spic is not favourable to the appellant.”
(19) From the above judgment, it is clear that for the period upto 31.08.2004, unless the duty was paid in cash, the CENVAT credit was not available since mere payment by debit in the DEPB scrips was of no avail. Assuming that the CENVAT credit for duty debited in DEPB scrips was available, in view of the categorical finding of the Division Bench that the value of DEPB scrip, once used, gets extinguished and there would be no question of seeking CENVAT credit thereafter, squarely applies and therefore the contention of the learned counsel for the 1″ respondent cannot be sustained.
(20) For the period subsequent to 31.08.2004, in view of the change in Foreign Trade Policy, the CENVAT credit was available for adjustments made in the DEPB scrips. The finding of the Tribunal for the period 2004-05, reads as follows:
“There can be no doubt that the total amount of admissible credit would exceed the amount of duty demanded by the Commissioner for 2004-05 and 05-06. In the result, the entire demand is liable to be set aside and the appeal be allowed. It is ordered accordingly.”
From the aforesaid finding, it is seen that the Tribunal without any basis, cryptically held that the total amount on the admissible credit exceeded the amount of duty demanded by the Commissioner for the period 200405 and 2005-06. We are of the view that perversity is writ large in the said finding of the Tribunal as it has failed to substantiate on what basis or material it arrived at the finding. The plea of revenue neutrality could not have been accepted in the absence of a factual determination by the Tribunal, based on the materials on record, as to the quantum of CENVAT credit available to the assessee, only upon recording such a finding the Tribunal could have legitimately concluded that the situation was revenue neutral.
(21) The Tribunal ought to have further seen that it is the Pt respondent who pleaded revenue neutrality, ergo, the burden was heavy on the 1″ respondent to place the supporting materials before the authorities to establish that the CENVAT credit of CVD paid through DEPB scrips was equal to or exceeded the amount of duty demanded by the Commissioner for the period 2004-05 and 2005-06. We, therefore accept the contention of the learned counsel for the appellant that Tribunal’s finding on revenue neutrality is untenable and liable to be set aside.
Limitation:
(22) In so far as applicability of the extended period of limitation is concerned, we find that the Appellate Authority has dealt with the same in a very Cavalier fashion. The Tribunal on the issue of limitation held as follows: “For the prior period, the demand is evidently hit by time-bar for the reasons stated by learned counsel.”
(23) The said finding is patently unreasonable. On consideration of the entire materials and after elaborate discussion of each of the aspects of Section 11A, the Original Authority, held as follows:
“When the whole case is considered dispassionately, it is well evident that CGL had made serious attempts to make mockery of settled laws and concealed their activities from the knowledge of the Department in pursuit of profit motive at the cost of Government Revenue. In these circumstances, the principles set out by the Hon ‘ble Supreme Court to demand duty under extended proviso to Section 11A[1] being fully present, invocation of the same in this case is well justified.”
(24) In the absence of any justifiable reasons to overturn the said finding of the Original Authority by the Tribunal, and in view of the finding of fact rendered by the Original Authority, that there was deliberate suppression of facts with an intention to evade payment of duty and that the plea of bona fide belief was also not made out, we are of the view that Section 11A was rightly invoked by the Revenue/appellant. Therefore, the finding of the Tribunal on application of extended period of limitation for the period prior to 31.08.2004 is concerned is set aside as illogical and unreasonable.
Penalty and Interest:
(25) On the issue of penalty and interest, we find that the Original Authority after considering the statements of the 1st respondent’s officials and on appreciation of the materials on record found that the 1″ respondent had by its positive activities with a view to evade the payment of excise duty contravened the provisions of Rules 4, 6, 8, 10, 11 and 12 of the Central Excise Rules 2002 and therefore, imposed deterrent penalty in terms of Section 11 AC read with Rule 28 of the Central Excise Rules, 2002 and interest under Section 11AB of the Act. In our view, the findings of fact call for no interference, since we find no perversity in such finding.
(26) In view of the above discussions, the substantial questions of law framed are answered in favour of the Revenue.
(27) Accordingly, this Civil Miscellaneous Appeal is allowed and the Final Order No.905/2007 dated 19/07/2007 in Appeal No. E/25/2007 on the file of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai, is No costs. Consequently, the connected miscellaneous petition is closed.
Today, the above matter is listed under the caption “For Being Mentioned” at the instance of the learned Standing counsel for the appellant.
2. The learned Standing counsel for the appellant submitted that this Court had allowed the above Civil Miscellaneous Appeal filed by the appellant, vide WEB judgment dated 23.07.2026. However, in the last paragraph of the judgment, namely, paragraph No.27, instead of setting aside the Final Order No.905/2007 dated 19/07/2007 in Appeal No. E/25/2007 on the file of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai, it has been wrongly mentioned as “confirmed”. Hence, the learned Standing counsel prays for appropriate orders.
3. It is seen that due to inadvertence, in paragraph No.27 of the judgment dated 23.07.2026, instead of mentioning the Final Order No.905/2007 dated 19/07/2007 in Appeal No. E/25/2007 on the file of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai, as “set aside and reversed”, it has been wrongly typed as “confirmed”
4. Hence, this Court directs the Registry to delete the word “confirmed” in paragraph No.27 and replace the same as “set aside and reversed” and issue fresh judgment copy forthwith.
