Rule 57Q(3) restriction confined to capital goods; input credit on imported components under Rule 57A remained admissible.

Additional duty of customs paid on imported components and raw materials classifiable under Heading 98.01 was held to fall outside the 75% restriction in Rule 57Q(3) because that limitation applies only to capital goods credit under Rule 57Q. Credit on such inputs remained admissible under Rule 57A, and Rule 57B(2) excluded capital goods only from the Rule 57A or Rule 57B credit scheme. On that basis, the disallowance of credit and the penalty were unsustainable, and the Board circular was treated as correctly reflecting the position.

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Issues: Whether the credit of additional duty of customs paid on imported components and raw materials classifiable under Heading 98.01 of the Customs Tariff was restricted to 75% under Rule 57Q(3), or whether such credit was admissible under Rule 57A without that restriction.

Analysis: Heading 98.01 covers raw materials, components and other specified goods required for initial setting up or substantial expansion of an industry project. Credit under Rule 57Q is confined to capital goods, while Rule 57B(2) excludes capital goods as defined in Rule 57Q from the ambit of credit under Rule 57A or Rule 57B. The restriction in Rule 57Q(3) applies only to additional duty paid on capital goods for which credit is available under Rule 57Q and does not govern credit taken under Rule 57A on inputs such as the imported components and raw materials in question. The Board circular was accepted as correctly stating this position.

Conclusion: The 75% restriction under Rule 57Q(3) did not apply to the credit availed under Rule 57A on the imported goods, and the disallowance of credit and penalty were unsustainable in favour of the assessee.

Ratio Decidendi: The restriction in Rule 57Q(3) is confined to capital goods credit under Rule 57Q and cannot be extended to credit on inputs admissible under Rule 57A or Rule 57B.

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