Countervailing duty exemption for silk fabrics upheld where input credit condition did not defeat notification benefit.

Imported undyed and unprinted silk fabrics were held eligible for exemption from countervailing duty under Notification No. 30/2004-C.E. because additional customs duty under Section 3(1) of the Customs Tariff Act must be assessed by reference to the exemption position applicable to the like article in India. The relevant Indian manufacturer would not have been required to take Cenvat credit on inputs, as those inputs were not chargeable to excise duty. On that basis, the notification condition did not defeat the exemption claim, and the CVD demand was unsustainable.

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Issues: Whether the respondents were entitled to exemption from payment of countervailing duty on imported undyed and unprinted silk fabrics under Notification No. 30/2004-C.E. dated 09.07.2004, notwithstanding the objection that the corresponding excise condition was not fulfilled.

Analysis: The dispute was treated as covered by earlier decisions holding that, for levy of additional customs duty under Section 3(1) of the Customs Tariff Act, 1975, the imported goods have to be examined with reference to the applicable exemption notification and the position of the like article in India. It was found that, during the relevant period, the Indian manufacturer of the relevant yarn and fabric would not have been required to take Cenvat credit on inputs because the inputs were not chargeable to excise duty. In that situation, the condition attached to the notification did not defeat the exemption claim, and the demand of CVD was not sustainable.

Conclusion: The respondents were entitled to the exemption and the Revenue's challenge failed.

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