DEPB vs Cenvat – what about customs duty? Is drawback available?
The controversy about CVD paid through debit in scrips like DEPB seems to be almost settled with the Board clarifying that cenvat credit should be allowed even if the CVD is paid through debit in the certificate. But now a new controversy seems to have emerged. CVD can be claimed as cenvat credit or drawback but what about customs duty? Well, this is the original controversy.
Board has clarified that CVD paid in DEPBscrips can be claimed as drawback but there is no clarification with regard to customs duty. In fact there is a clarification that it should not be allowed.
By Circular No. 3/99-Customs, dated 3-2-1999, Board clarified,
To dispel all doubts in the field it needs to be reiterated that Brand rate of drawback is admissible only against cash payment of duties, as is already laid down under proviso (ii) of Rule 3 of the Customs & Central Excise Duties Drawback Rules, 1995. A debit of duties payable under DEPB Scheme/Pass Book Scheme on import of goods is in effect availment of exemption of duty under the Customs Act. Being operated through an Exemption Notification, such debit does not constitute payment of duties. Therefore no drawback is admissible against debit of duties made in a DEPB Book or in a Pass Book issued under the erstwhile Pass Book Scheme.
However by Circular No. 41/2005-Cus., dated 28-10-2005, CBEC had modified the 1999 circular and clarified that
The matter has been examined by the Board. Hitherto, the additional customs duty paid in cash only was adjusted as CENVAT credit or duty drawback while the same paid through debit under DEPB was not allowed as duty drawback. In the Foreign Trade Policy 2004-2009, which came into force w.e.f. 1-9-2004, it has been provided under Paragraph 4.3.5 that the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT credit or Duty Drawback as per the rules framed by the Department of Revenue. Taking note of this change, it has been decided that the additional customs duty paid through debit under DEPB shall also be allowed as brand rate of duty drawback.
Accordingly, the instructions contained in Circular No. 3/99-Cus., dated 3-2-1999 stand modified.
This is being interpreted in the field to mean that while Board has clarified that CVD can be claimed as drawback, there is no such clarification about basic customs duty, and so no drawback can be allowed of basic customs duty debited in the DEPBscrips. DDT spoke to several officers in different Custom Houses and they were not aware of the Board circulars but expressed the opinion that there is absolutely no doubt that drawback of basic customs duty can be allowed. But we are informed that some commissioners have issued notices proposing to reject drawback claims of customs duty debited in DEPB certificates.
Will the Board clarify?