Modvat credit for inputs from export-oriented units is limited by additional duty on like goods, not by splitting excise duty components.

For inputs received from a hundred per cent export-oriented undertaking, Modvat credit under Notification No. 5/94-C.E. (N.T.) is capped by the additional duty leviable on like imported goods under Section 3 of the Customs Tariff Act. The duty paid by the undertaking on domestic clearances remains excise duty, even though its measure is linked to customs duties, and it cannot be split into assumed customs-duty components for restricting credit. The correct comparison is between the additional duty leviable on like goods and the actual excise duty paid on the inputs; credit is limited to the lower amount.

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Issues: Whether the Modvat credit available on inputs received from a hundred per cent export-oriented undertaking is to be restricted only to the component of additional customs duty actually embedded in the excise duty paid on such inputs, or whether the credit is to be determined by comparing the excise duty paid on the inputs with the additional duty leviable on like imported goods.

Analysis: The duty collected on clearances by a hundred per cent export-oriented undertaking to the domestic market is central excise duty, although the measure for its quantification is linked to customs duties. The method adopted for measuring the levy does not alter the nature of the levy. The first proviso to Notification No. 5/94-C.E. (N.T.) restricts credit only up to the extent of additional duty leviable on like goods under Section 3 of the Customs Tariff Act, and does not require dissecting the excise duty actually paid by the undertaking into its supposed customs-duty components. The correct method is to ascertain, first, the additional duty leviable on like goods if imported, and, second, the actual duty paid on the inputs by the undertaking under the relevant excise notification; the credit is then limited to the lower of the two amounts.

Conclusion: The credit cannot be restricted to an alleged customs-duty component carved out of the excise duty paid by the undertaking. The assessee's construction was accepted and the view expressed in the second Weston Electronics case was affirmed.

Final Conclusion: The legal position adopted favours determination of Modvat credit by comparing the actual excise duty paid on the inputs with the additional duty leviable on like goods, without dissecting the duty paid by the export-oriented undertaking into basic customs and other customs-duty components.

Ratio Decidendi: For inputs received from a hundred per cent export-oriented undertaking, Modvat credit under the relevant notification is limited by the additional duty leviable on like goods, but the duty actually paid by the undertaking remains excise duty and cannot be split into imagined customs-duty constituents for the purpose of curtailing credit.

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