Modvat credit on countervailing duty remains allowable despite a separate customs exemption declaration, absent a specific statutory bar.

Modvat credit on countervailing duty paid on imported goods was held allowable where the importer had filed a declaration only to claim exemption from special additional duty under a separate customs notification. The governing Modvat scheme contained no specific bar against such credit, and the fact that the declaration served a different exemption purpose did not by itself establish a prohibited double benefit. Since the imported goods were used in manufacture and/or cleared on payment of duty under Rule 57F(3) of the Central Excise Rules, 1944, denial of credit was not sustainable and the demand was set aside.

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Issues: Whether Modvat credit on countervailing duty paid on imported goods could be denied merely because the importer had filed a declaration to avail exemption from special additional duty under Notification No. 22/99-Cus.

Analysis: The declaration was filed for availing exemption from special additional duty, while the credit claimed related to countervailing duty actually paid on the imports. The governing Modvat regime did not contain any bar against taking such credit merely because a declaration had been made for a different customs exemption purpose. It was also undisputed that the imported goods had been used in manufacture and/or cleared on payment of duty in terms of Rule 57F(3) of the Central Excise Rules, 1944. In these circumstances, denial of credit on the ground of alleged double benefit was not sustainable.

Conclusion: Modvat credit on the countervailing duty was allowable, and the demand was set aside.

Ratio Decidendi: Credit of countervailing duty cannot be denied in the absence of a specific statutory bar merely because the importer filed a declaration to claim a separate customs exemption.

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