The Delhi High Court has upheld the rejection of cenvat credit on countervailing duty (CVD) paid on imported capital goods on the grounds that only after the investigation was started, the Petitioner tendered the amount in order to avoid prosecution and approach the Settlement Commission.
The bench of Justice Prathiba M. Singh and Justice Dharmesh Sharma has observed that credit cannot be given to a party which has deliberately not complied with the law. The Settlement Commission is right in holding that if the DRI had not started the investigation, the irregularity would have gone completely unnoticed and unchecked. The Petitioner had sufficient time to complete its export obligation and upon failure to do so, it ought to have voluntarily deposited the duty with interest, which he did not do.
The bench stated that after having flagrantly violated and not complied with its export obligation, the Petitioner cannot be seen to derive double advantage by seeking CENVAT Credit for the CVD.
The Petitioner/assesssee is in the business of manufacturing and sale of craft paper. It was established in the year 2000 and started manufacturing activities in the year 2002. Until 2014-15, the Petitioner was engaged in manufacturing of writing and printing paper as also newsprint.
However, it started manufacturing craft paper. In respect of the manufacturing, certain capital goods i.e., plant and machinery were imported by the Petitioner during the years 2004-07 at a concessional rate of duty of only 5% in terms of the Customs Notification No. 97/2004-Cus dated 17th September, 2004.
In order to import the said capital goods, the Petitioner procured nine licenses/authorizations under the Export Promotion Capital Goods Scheme (EPCG authorizations). The permission to import the goods was on the condition that the Petitioner would utilize the imported plant and machinery and complete export obligations within a period of eight years, extendable by a further two years.
Since the export obligations were not fulfilled qua four EPCG authorizations, an investigation was commenced by the Directorate of Revenue Intelligence, Noida Regional Unit (DRI) and the Show Cause Notice (SCN) was issued.
After the show cause notice was issued, the Petitioner approached the Settlement Commission by way of an application under Section 127B of the Act to have the case settled. In the said application, the Petitioner admitted and accepted that the duty payable for settlement is Rs.31,71,143 and interest is to the tune of Rs.50,29,597. The Petitioner, in addition to praying for adjustment of the differential duty, also sought to avail the CENVAT Credit in respect of the CVD paid on the imported goods.
The Settlement Commission considered the settlement application of the Petitioner, and accepted the payment of differential duty as also the interest in respect of import of the capital goods. The Settlement Commission did not direct confiscation of the said capital goods, however, a penalty was imposed.
Finally, the Commission also granted immunity to the Applicant from prosecution, in terms of Section 127H of the Customs Act. The prayer for CENVAT Credit paid towards the CVD, was however rejected.
The Petitioner challenged the Final Order passed by the Settlement Commission has preferred the petition, only to the limited extent of the rejection by the Settlement Commission of the claim of CENVAT credit for the CVD.
The issue raised was whether the Petitioner can avail CENVAT Credit for the CVD qua the imported capital goods in terms of Rule 4 of the CENVAT Credit Rules, 2004.
The court held that had the investigation not been initiated the fraud on part of the Petitioner would never have been detected. The Settlement Commission has found the Petitioner liable for penal action under the provisions of the Act invoked in the SCN.
Case Details
Case Title: Janki Newsprint Ltd Versus Principal Commissioner Of Customs
Case No.: W.P.(C) 1919/2020
Date: 12/03/2025
Counsel For Petitioner: Pradeep Jain
Counsel For Respondent: Akshay Amritanshu
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