2012 (8) TMI 175 - HC - Customs

Benefit of Duty Free Import Authorization (DFAI) - Revenue stated that on obtaining DFIA the assessee has availed the credit even if the credit is reversed or paid back along with interest after clearance of the goods - Held that - As decided in Commissioner of Central Excise Mumbai- I Versus M/s Bombay Dyeing & Mfg. Co.Ltd 2007 (8) TMI 2 - SUPREME COURT the Cenvat credit taken if reversed before its utilisation it amounts to not taking the credit - in the case of DFIA if the credit availed on inputs used in the manufacture of final products is reversed before it is utilised either by reversing the credit or by cash payment with interest then it should be treated that the assessee has not availed the credit and accordingly the benefits under para 4.2.6 of the Foreign Trade Policy 2009-2014 cannot be denied while transferring the DFIA.

Summary

Issues:
Challenge to office memorandum issued by CBEC regarding availing of Cenvat credit under DFIA.

Analysis:
The petitioner challenged an office memorandum issued by the Central Board of Excise & Customs (CBEC) regarding the availing of Cenvat credit under the Duty Free Import Authorisation (DFIA). The petitioner imported raw materials duty-free under DFIA but availed Cenvat credit on duty paid consumables used in manufacturing final products. The petitioner reversed the Cenvat credit with interest after exporting the final products under DFIA. The issue was whether the petitioner could transfer DFIA without availing Cenvat credit. The CBEC held that once Cenvat credit is availed, it is considered availed even if reversed after goods clearance. The petitioner relied on para 4.2.6 of the Foreign Trade Policy, which allows DFIA transfer without availing Cenvat credit. The Deputy DGFT accepted the transfer request but sought clarification from the Revenue Department.

The CBEC's office memorandum was challenged based on a Supreme Court decision and a circular. The Supreme Court held that reversing Cenvat credit before utilization means it was not taken. The circular stated the same for specific notifications. The revenue argued that these rulings did not apply to the present case. However, the court disagreed, stating that the Supreme Court's decision's ratio applied to the present case. The language in para 4.2.6 of the Foreign Trade Policy was similar to the notifications considered by the Supreme Court. Therefore, the court held that if Cenvat credit on inputs used in manufacturing final products is reversed before utilization, it should be deemed that the credit was not availed. As a result, the benefits under para 4.2.6 of the Foreign Trade Policy could not be denied when transferring DFIA. The court made the rule absolute in favor of the petitioner with no order as to costs.