Modvat credit on imported capital goods cannot be denied merely for alleged breach of Project Import Regulations.

Modvat credit on countervailing duty paid for imported capital goods could not be denied merely because some machinery was installed in another unit than the one shown in the customs registration. The operative principle was that an alleged breach of the Project Import Regulations was a customs-law issue and did not, by itself, extinguish the excise credit entitlement. Since the duty had been paid on capital goods imported for factory use, the diversion allegation was insufficient to defeat the credit claim. The assessee was therefore entitled to the credit.

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Issues: Whether Modvat credit of countervailing duty paid on capital goods imported under the Project Import Regulations could be denied because some of the machines were installed in a different unit from the one stated in the customs registration.

Analysis: The credit claim arose from duty paid on capital goods imported for use in the appellant's factory. The only objection was that part of the machinery was diverted to another unit and that this amounted to non-compliance with the Project Import Regulations. The reasoning accepted that any breach of those regulations was a matter for customs action and did not, by itself, furnish a ground to refuse excise credit. The entitlement to credit was not defeated merely because the customs condition was allegedly breached.

Conclusion: Credit could not be denied on the basis of violation of the Project Import Regulations, and the assessee was entitled to the credit.

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