Modvat credit on re-imported goods was allowed where duty paid was in substance additional customs duty equal to Central Excise duty.

Re-imported goods exported earlier under bond without Central Excise duty attracted a duty burden, under Notification No. 94/96-Cus., equivalent in substance to additional duty of customs equal to Central Excise duty. The mere fact that customs booked the amount under the head of basic customs duty did not change its true character. Modvat credit was therefore admissible on the duty paid at re-importation, and denial of credit was unsustainable.

---

---

Issues: Whether Modvat credit was admissible on duty paid at the time of re-importation of goods under Notification No. 94/96-Cus. dated 16-12-1996.

Analysis: The re-imported goods had originally been exported under bond without payment of Central Excise duty. Under Notification No. 94/96-Cus. dated 16-12-1996, re-imported goods are exempt from basic customs duty and special customs duty, while the amount indicated in the Table for the relevant category corresponds to the Central Excise duty or its equivalent additional duty of customs. The fact that the customs authorities booked the amount under the head of basic customs duty did not alter the true character of the duty paid. The notification scheme showed that the duty burden on such re-imported goods was, in substance, the additional duty of customs equal to Central Excise duty.

Conclusion: Modvat credit on the duty paid at re-importation was admissible, and the denial of credit was unsustainable.

Ratio Decidendi: Where re-imported goods are chargeable under a combined exemption notification to duty equal to Central Excise duty in the nature of additional duty of customs, credit cannot be denied merely because the duty was booked under an incorrect customs head.

---