Customs, Excise and Gold Tribunal - Tamil Nadu
Polyspin Limited vs Cc on 19 February, 2007
Equivalent citations: 2007(120)ECC238, 2007ECR238(TRI.-CHENNAI), 2007(214)ELT347(TRI-CHENNAI)
ORDER P. Karthikeyan, Member (T)
1. This appeal is directed against the Order dated 18.11.2004 passed by the Commissioner of Customs, Tuticorin. In the impugned order, Commissioner has demanded an amount of Rs. 5936812/- under Rule 16 of Drawback Rules, 1995 from M/s Polyspin Ltd., Rajapalayam being erroneously paid drawback amount.
2. Facts of the case are that, during 1999-00 to 2002-03, M/s Polyspin Ltd., Rajapalayam, (henceforth, also, importer, PSL or appellants) had exported Polypropylene woven bags, made out of raw materials imported using DEPB licences purchased from the market, under claim for drawback and received Rs. 5936812/- as drawback at all industry rate. All the exports were made without claiming DEPB benefit. PSL had sourced the raw materials needed for production of the goods exported for claiming the disputed drawback either by discharging the basic customs duty and additional duty of customs with DEPB credit or, in certain cases only the basic customs duty discharged with DEPB scrip and additional duty of customs paid in cash. In all cases, however, no Modvat/Cenvat credit of CVD was availed. All the material exports had been made under claim for drawback and no DEPB benefit was claimed. In reply to the Show Cause Notice, PSL had submitted that they had claimed the impugned drawback and the same had been sanctioned in accordance with law. They could avail either the DEPB benefit or claim drawback in respect of the exports made. As they had not availed DEPB benefit, they were eligible for drawback.
3. PSL claimed that an exporter could obtain a DEPB licence provided he/she did not claim Modvat/Cenvat benefit of CVD paid on raw materials imported and did not avail drawback on export of finished goods. Alternatively, an exporter could obtain drawback without claiming DEPB and Modvat/Cenvat benefit of CVD paid on raw materials imported. In their case they had not filed DEPB shipping bills and did not obtain DEPB credit on exports. They had used DEPB scrips purchased from the market for all their exports. They did not operate under the DEPB scheme and were therefore eligible for drawback on the finished goods exported. Therefore General Note 2(g) to the Draw Back Rules to the effect that the rates of drawback in the schedule shall not apply to export of a commodity if the same was manufactured and/or exported following the facility under DEPB scheme did not apply to the impugned exports as PSL had not operated under the DEPB scheme.
4. It was also stated that till the Larger Bench decision in Essar Steels Ltd. v. CCE, Vizag Final Order No. 945/2004 - NBA dated 16.08.04, reversed a decision of the Double Member bench in Spic Ltd v. CCE, Chennai 2004 (61) RLT 671 and a similar earlier decision of the Single Member bench in on importers' entitlement to Modvat/Cenvat credit of CVD paid with DEPB credit, they were under the bonafide belief that duty payment with DEPB scrip had entitled them for drawback. Therefore longer period could not be invoked to recover the impugned drawback granted to them nor could any penalty be imposed on them.
5. Though the Show Cause Notice had proposed to demand an amount of Rs. 97,14,173/-being the inadmissible drawback and to penalize PSL under Section 114 of the Customs Act,'62, the adjudicating authority found that the appellants had paid Rs. 29,76,043/- as CVD on import of raw materials in cash and had therefore licitly obtained drawback to that extent. He found that the appellants had imported the raw materials using DEPB scrips purchased for a consideration almost equal to the exemption availed on the goods. Had the assessee chosen to pay the duty instead of availing the exemption under the DEPB notification, PSL would have been eligible for the disputed drawback amount. In the circumstances the Commissioner refrained from imposing penalty on the appellants. He observed: "I am aware that the DEPB scrips have been purchased for monetary considerations. The same money or slightly more could have been used to pay the Customs duty on the imported materials. Then the raw materials would have been treated as duty paid."
6. The Commissioner found that the appellants had imported raw materials for the goods exported by availing DEPB exemption under Notification No. 34/97 Cus., ie without payment of duty. As per proviso to Rule 3(1)(c) of the Customs and Central Excise Duties Drawback Rules, 1995, No drawback shall be allowed if the said goods are produced or manufactured, using imported materials or excisable materials in respect of which duties have not been paid.
He relied on the Tribunal's decision in the The Essar Steel case supra in support of his finding. In the impugned order, the Commissioner cited the provisions of Rule 16 of the Customs and Central Excise Duties Drawback Rules, 1995 which empowered the proper officer of Customs to recover the erroneously paid drawback amount in terms of provisions of Section 142(1) of the Customs Act '62., if the claimant refused to repay such amount on demand. The demand was not barred by limitation. Accordingly he confirmed the demand for Rs. 5936812/- being erroneously allowed drawback to PSL.
7. In the appeal before us, the Learned Counsel has reiterated the arguments advanced before the Commissioner. The Learned Counsel invited our attention to the Circular No. 57/2004 Cus., dated 21/10/2004 in F. No. 605/11/2004 dated 21/10/2004/DBK in support of their arguments against the demand already made. It was submitted that the issue in dispute was settled through the said Circular No. 57/2004 Cus., dated 21/10/2004 and consequently the demand was liable to be set aside. It was clarified by the circular that DEPB benefit should be allowed on export even though inputs used in the manufacture had been cleared under DEPB scheme. He also submitted that the adjudicating authority had confirmed the demand relating to the period 1999-2000 to 2001-2002 pursuant to a Show Cause Notice issued in March 2004. As the Larger Bench had reversed the Tribunal's earlier decisions in favour of the appellants only in August 2004, confirming the demand invoking longer period against them was liable to be set aside especially since no penalty was imposed on them. The appellants have cited the following judicial authorities in support of the limitation plea.
1. Pahwa Chemicals Pvt. Ltd., v. CCE 2005 (189) ELT 257 (SC)
2. Jaiprakash Industries Ltd., v. CCE
3. George Maijo & Co v. CCE
4. Prolite Engineering Co v. UOI
5. Gufic Pharma Ltd. v. CCE 1986 (85) ELT 67 (T)
6. Collector v. Gufic Private Ltd. 1997 (93) ELT A 186
7. Sutham Nylocots v. CCE The Learned SDR reiterated the reasoning followed by the Commissioner in the Order-in-Original and submitted that the same was passed in accordance with law and needed to be sustained.
8. We have carefully considered the case records and the rival submissions. We find that DEPB scheme is intended to neutralize the import duties suffered by the raw materials/inputs by allowing credit of such duties at notified rates on export of finished products. The importer had met liability to duties of customs on all related imports of the raw materials through DEPB scrips purchased from the market in the subject case. All the impugned exports had been made under claim for drawback under drawback Shipping Bills. The appellants had not claimed DEPB benefit for the said exports. In cases where they had paid CVD in cash on raw materials imported, they had not taken Modvat/Cenvat credit. Therefore it cannot be said that the exports in question were made under the DEPB scheme and that the appellants were not entitled to drawback of duty in respect of the products exported. However, it is imperative that duty was paid on raw materials for the exporter to be eligible to drawback on export of goods manufactured with such inputs. In this connection we have perused the Circular No. 57/2004-Cus., dated 21-10-2004. As per the Circular, DEPB benefit is allowed for exports even when inputs used in export goods are cleared through DEPB. Relevant excerpts of the same are reproduced below.
1. "Under the DEPB Scheme, the incidence of customs duty (basic) on the deemed import content of the export product is refunded to the exporters. The refund is provided by way of grant of duty credit against the export product. The credit is given at notified rates for import of raw materials, components, etc. The DEPB and/or the items imported against it are freely transferable."
2. In this connection, a doubt has been raised as to whether the benefit of DEPB would be available to the exports where the inputs used in the manufacture of the export product were imported on payment of duty through DEPB. The point raised is that since no customs duty has been paid on the inputs by way of cash, the exporter will not be entitled to DEPB on export goods utilizing such inputs.
3. The matter has been examined by the Ministry. It is noted that the DEPB Scheme is a post export duty remission scheme, which allows neutralization of deemed import duty charges on inputs used in the export product. Under the Scheme, the exporter first uses duty paid inputs in the manufacture of the export product and after exports he gets the duty credit at the notified rates. Thus, instead of refund of duty in cash after exports, a scrip in the form of DEPB is issued against the export product as duty remission. The exporter is at liberty to utilize the scrip for import of raw materials, components, etc. within the credit allowed in the DEPB or he may sell it to any other exporter.
4. In a case where the exporter sells the DEPB to another exporter, he gets cash of equivalent amount to pay customs duty on the import of raw materials and components. In this situation, he would be entitled to DEPB on his subsequent exports. Further, the exporter can sell the inputs imported against DEPB to another exporter for being used in export production. In this situation also, the latter exporter will be entitled to DEPB on his exports. Therefore, to deny the DEPB benefit to an exporter who has utilised the DEPB scrip for sourcing his own inputs is not appropriate. As such, the point raised that the benefit of DEPB should not be allowed in a situation where the customs duty has been paid on the inputs by way of debit in DEPB is devoid of merits.
5. It is, therefore, clarified that the benefit of DEPB Scheme should be allowed on exports even though the inputs used in the manufacture of the export product were cleared through DEPB route.
9. The above circular clarifies that DEPB credit can be utilized to discharge duty liability on import of inputs, use of which in production of export goods entitle the exporter to earn further DEPB credit. As use of credit is treated as duty payment, it follows that the exporter can opt for drawback at all industry rates on export products attributable to duty on inputs discharged with DEPB credit, instead of further DEPB provided that the exporter does not avail of Modvat/Cenvat credit of CVD paid. The circular issued by CBEC is binding on all departmental authorities. In view of clarification contained in this Circular, the impugned order is liable to be set aside.
10. We have considered the various case law cited by the appellants. We find that all of them deal with cases similar on facts to the subject case and laid down the ratio that longer period of limitation could not be invoked when there were different views about the scope of a notification or classification of goods involved and the adjudicating authority was convinced of the bonafide of the party who had consequently not paid/short paid the due duty. In view of the stand we have taken, these judicial authorities on limitation are not of any relevance in deciding the matter. Accordingly we set aside the impugned order and allow the appeal.
(Operative portion of the Order was pronounced in open Court on 19.02.07)