Cenvat credit on inputs from a 100% EOU is capped by the additional duty ceiling, not the duty's customs component.

Credit under the Cenvat/Modvat scheme for inputs received from a 100% Export Oriented Unit is limited by the ceiling of the additional duty leviable on like imported goods under Section 3 of the Customs Tariff Act, 1975. Duty paid by the EOU on clearance to the domestic area is treated as excise duty in character, even though its quantum is measured by reference to customs duty. The recipient manufacturer is entitled to credit up to the lesser of the actual duty paid on the inputs or the applicable additional duty ceiling, and the duty paid by the EOU cannot be split into customs components to deny credit.

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Issues: Entitlement of a manufacturer receiving goods from a 100% Export Oriented Unit to avail credit of the duty element on such inputs, and whether the credit is confined to the additional duty actually paid by the 100% EOU or extends to the additional duty leviable on like imported goods, subject to the prescribed ceiling.

Analysis: The inputs were cleared by the 100% EOU on payment of excise duty under the relevant exemption notification, and the credit scheme under the applicable Cenvat/Modvat provisions restricted credit to the extent equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975. The controlling principle, as settled by the Larger Bench, is that goods cleared from a 100% EOU to the domestic area attract excise duty in character, even though the quantum is measured by reference to customs duty. The duty paid by the EOU cannot be dissected into customs components for denying credit, and the manufacturer is entitled to credit up to the lesser of the actual duty paid on the inputs or the additional duty leviable on like goods.

Conclusion: The assessee was entitled to the differential credit claimed, and the contrary view taken by the lower authorities was unsustainable.

Ratio Decidendi: Duty paid by a 100% EOU on clearance to the domestic tariff area is excise duty in character, and the recipient's credit is to be restricted only by the ceiling of the additional duty leviable on like imported goods, not by a further limitation to the customs-duty component actually paid by the EOU.

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