Modvat credit on 100% EOU inputs was barred where the additional customs duty component was nil.

Modvat credit on inputs cleared by a 100% EOU to DTA was restricted by Notification No. 5/94 under Rule 57A to the extent of duty equal to the additional duty leviable under Section 3 of the Customs Tariff Act, 1975. Where that additional duty component was nil under the applicable notifications, the fact that aggregate customs duties were paid on DTA clearance did not enlarge the credit entitlement. The credit claim therefore failed because the statutory cap was linked to the additional duty element, and denial of credit was upheld.

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Issues: Whether Modvat credit was admissible on inputs cleared by a 100% EOU to DTA where the additional duty of customs leviable under Section 3 of the Customs Tariff Act, 1975 was nil.

Analysis: Notification No. 5/94 issued under Rule 57A of the Central Excise Rules, 1944 restricted credit on inputs manufactured by a 100% EOU to the extent of duty equal to the additional duty leviable under Section 3 of the Customs Tariff Act, 1975. The goods in question were cleared to DTA on payment of aggregate customs duties, but the additional duty of customs on the relevant goods was nil under the applicable notifications. The nature of the duty paid on DTA clearance was not decisive for the credit claim, because the credit entitlement itself was limited by the statutory restriction linked to the additional duty component.

Conclusion: Modvat credit was not admissible and the denial of credit was upheld.

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