Modvat credit on 100% export oriented unit clearances remains available on full duty invoice value where Rule 57E is not triggered.

Duty paid by a 100% export oriented unit on domestic clearances retained the character of excise duty even though its measure was linked to customs duty on comparable imports. On the facts stated, Rule 57E could not be used to restrict Modvat credit because no variation arose from refund or recovery of short-paid duty. The appellant therefore established a prima facie case for credit of the full duty shown in the invoices, and the proposed limitation to 7.5% was not justified at the pre-deposit stage. Relief was granted by setting aside the denial order and remitting the matter for decision on merits without insisting on pre-deposit.

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Issues: Whether the appellant was entitled, prima facie, to Modvat credit of the full duty shown in the invoices issued by the 100% export oriented unit, and whether Rule 57E could be invoked to restrict credit to the customs-duty component.

Analysis: The duty paid by the export oriented unit on clearances within India was treated as excise duty, though its measure was linked to the customs duty payable on importation of similar goods. On the facts noted, the variation contemplated by Rule 57E had not arisen, because the duty paid by the supplier had neither been refunded nor recovered as short-paid duty. The larger-bench view referred to in the order supported the position that the character of the levy did not change merely because the measure of duty was linked to customs duty.

Conclusion: The appellant made out a prima facie case for waiver of the disputed deposit, and the restriction of credit to 7.5% was not justified at that stage.

Final Conclusion: The order denying relief was set aside and the matter was sent back for decision on merits without insisting on pre-deposit.

Ratio Decidendi: Where duty paid by a 100% export oriented unit retains the character of excise duty, the full duty shown in the invoice is prima facie available as credit unless the conditions for variation under Rule 57E are attracted.

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