Modvat credit on EOU clearances allowed on full duty paid where the levy retained its excise character.

Modvat credit was available on the full duty paid on goods cleared by a 100% export oriented unit to a domestic tariff area unit because the levy on such clearances remained excise duty. Although the duty was computed by reference to the customs duties that would have been payable on import, that reference was only a method of calculation and did not change the character of the levy. As the invoices separately disclosed the duty components and the levy retained its excise nature, credit was not confined to the additional customs duty element. The entire duty paid on the goods was therefore eligible for Modvat credit.

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Issues: Whether Modvat credit was admissible on the entire duty paid on goods cleared by a 100% export oriented unit to a domestic tariff area unit, or whether credit was confined only to the additional customs duty component.

Analysis: The duty levied on clearances from a 100% export oriented unit to the domestic tariff area is excise duty, though its quantum is computed with reference to the customs duties that would have been payable on import. The reference to customs duty is only a method of calculation and does not alter the character of the levy. Since the invoices showed the duty components separately and the levy retained its character as excise duty, the entire duty paid on the inputs was available as credit.

Conclusion: The appellant was entitled to Modvat credit of the entire duty paid on the goods.

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