Modvat credit on re-imported repaired machinery upheld where concessional assessable value did not change the character of additional customs duty.

Modvat credit was held admissible on additional customs duty paid on a machine re-imported after repair. The re-import exemption notification merely fixed a concessional assessable value by reference to repair charges, insurance and freight; it did not change the levy into duty paid only on repair-related charges. Because the additional customs duty was paid on the re-imported capital goods themselves, the reduced assessable value did not negate the character of the duty or justify denial of credit. The authorities' view that no duty had been paid on the capital goods was unsustainable, and the denial of credit was set aside in favour of the assessee.

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Issues: Whether Modvat credit was admissible on the additional customs duty paid on a machine re-imported after repair, where the assessable value had been reduced under the applicable exemption notification.

Analysis: The machine had been originally imported on payment of duty, exported for repairs, and re-imported under the export-import policy. The notification governing such re-imports granted exemption only to the extent that duty was calculated on a deemed assessable value consisting of repair charges, insurance, and freight, but it did not convert the duty into one paid merely on repair charges. The additional customs duty was in fact paid on the re-imported article itself, and the reduction in assessable value under the notification did not negate the character of the levy as duty on the goods. The authorities' view that no duty was paid on the capital goods was therefore unsustainable.

Conclusion: Modvat credit was admissible, and the denial of credit was set aside in favour of the assessee.

Ratio Decidendi: Where additional customs duty is paid on a re-imported repaired article, a concessional assessable value fixed by exemption notification does not alter the character of the levy so as to deny credit on the ground that duty was paid only on repair-related charges.

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