Modvat credit on inputs from export-oriented units turns on whether credit is limited to actual additional duty paid.

Modvat credit on inputs received from a 100% export-oriented unit was examined under Rule 57A of the Central Excise Rules, 1944 and the proviso to Notification No. 177/86-C.E., which limited credit to duty equal to the additional duty leviable under Section 3 of the Customs Tariff Act, 1975. The competing views were whether credit must be confined to the additional duty actually paid on the inputs or whether the restriction applies to the notional additional duty element reflected in the duty paid by the export-oriented unit. Because conflicting Tribunal precedent existed on the same question, the matter was considered fit for determination by a Larger Bench.

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Issues: Whether the quantum of Modvat credit admissible on inputs received from a 100% export-oriented unit, where duty had been paid under the proviso to Section 3 of the Customs Tariff Act, 1975 read with Notification No. 97/91-C.E., should be confined to the amount of additional duty of customs actually deposited, and whether the issue required reference to a Larger Bench.

Analysis: The dispute turned on the construction of Rule 57A of the Central Excise Rules, 1944 and the proviso in Notification No. 177/86-C.E., which restricted credit in respect of inputs manufactured by a 100% export-oriented unit to the duty equal to the additional duty leviable under Section 3 of the Customs Tariff Act, 1975. One view treated the credit as limited to the actual additional duty component deposited on the inputs, while another view treated the restriction as operating with reference to the notional additional duty element inherent in the excise duty paid by the 100% export-oriented unit. The Bench noted the existence of contrary Tribunal precedent on the same question and considered that the conflict warranted determination by a Larger Bench.

Conclusion: The question on the quantum of Modvat credit was referred to a Larger Bench for .

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