Modvat credit for project imports under Chapter 98.01 was allowed, and the related penalty was set aside.

Capital goods imported as project import and classified under CSH 9801.00 were treated as eligible for Modvat credit under Rule 57Q(3), because the special provision allowed credit on goods falling under Chapter Heading 98.01 of the Customs Tariff Act to the extent of 75% of the additional duty paid. The individual classification of each imported item was held unnecessary for this eligibility test. As credit was available under the special provision, the consequential penalty under Rule 173Q was vacated.

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Issues: Whether capital goods imported as project import and classified under CSH 9801.00 were eligible for Modvat credit under Rule 57Q(3), and whether the penalty under Rule 173Q could stand.

Analysis: Rule 57Q(3) grants credit, notwithstanding sub-rule (1), on goods falling under Chapter Heading 98.01 of the Customs Tariff Act to the extent of 75% of the additional duty paid. On the facts, the relevant goods were imported under project import and classified under CSH 9801.00, so individual classification of each item was held unnecessary for the purpose of eligibility. Since the credit was available under the special provision, the consequential penalty could not survive.

Conclusion: The goods were held eligible for Modvat credit under Rule 57Q(3), and the penalty under Rule 173Q was vacated.

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