MODVAT credit on imported inputs survives despite domestic excise exemption when additional customs duty was validly paid

MODVAT credit could not be denied on additional duty of customs paid on imported inputs merely because similar domestic goods were exempt from central excise duty. The imported inputs had been assessed to countervailing duty at import stage, were supported by Bills of Entry, and no exemption had been granted on import. Duty levied under Section 3 of the Customs Tariff Act, 1975 is customs duty in nature, while the central excise tariff is relevant only for quantification. A central excise exemption notification does not automatically extend to imported goods, especially where the exemption is conditional. Credit was therefore admissible and the denial was unsustainable.

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Issues: Whether MODVAT credit could be denied on the additional duty of customs paid on imported inputs merely because similar goods were exempt from central excise duty under an exemption notification.

Analysis: Rule 57-A permitted MODVAT credit on the additional duty of customs paid on inputs used in manufacture. The imported inputs had been assessed to additional duty by the Customs House, no exemption had been granted at import stage, and the inputs were duly declared and supported by Bills of Entry showing duty payment. The fact that the corresponding domestic goods were exempt under a central excise notification did not mean that the countervailing duty on imported goods was not leviable. Duty collected under Section 3 of the Customs Tariff Act, 1975 is in the nature of customs duty, and the central excise tariff is relevant only for quantification. An exemption notification under the central excise regime does not automatically extend to imported goods, particularly where the exemption is conditional.

Conclusion: The denial of MODVAT credit was unsustainable. The imported inputs were eligible for credit of the additional duty of customs paid on them, and the impugned order was set aside.

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