Modvat credit on inputs from a 100% Export Oriented Undertaking requires actual payment of additional customs duty.

Modvat credit on cotton waste received from a 100% Export Oriented Undertaking was held inadmissible because the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 had not been paid. The proviso to Notification No. 5/94-C.E. limited credit to the extent of such additional duty, and that condition was not satisfied on the facts. The principle applied was that exemption or credit benefits can be claimed only when every notification condition is fully met. Credit was therefore disallowed in law.

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Issues: Whether Modvat credit was admissible on cotton waste received from a 100% Export Oriented Undertaking when the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 had not been paid.

Analysis: The proviso to Notification No. 5/94-C.E. restricted credit in respect of inputs produced or manufactured by a 100% Export Oriented Undertaking to the extent of duty equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975. Since the additional duty had not been paid on the goods in question, the condition for availing credit was not satisfied. The conclusion was supported by the principle that exemption or credit benefits are available only when the notification conditions are fully fulfilled.

Conclusion: Modvat credit was not admissible, and the disallowance of credit was in law and against the assessee.

Final Conclusion: The appeal failed because the statutory condition governing credit on goods from a 100% Export Oriented Undertaking was not met.

Ratio Decidendi: Where a notification restricts credit to the extent of additional duty leviable on like goods, credit cannot be claimed unless that additional duty has actually been paid.

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