Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit, New Delhi
Subject: Modvat credit on capital goods imported under Project Imports- Reg.
Representations have been received by the Board that in some Commissionerates the credit of additional duty of Customs paid on the capital goods (classified under heading 98.01 of the Customs Tariff), 1986, has been denied on the following grounds:
(i) there is no entry in the Central Excise Tariff corresponding to the entry 98.01 of the Customs Tariff;
(ii) the notification issued under rule 57A of the Central Excise Rules as well as the Annexure given under rule 57Q, does not mention goods cleared under the heading No. 98.01 of the Customs Tariff Act; and
(iii) in the absence of specific mention about the eligibility of the goods imported under the Project Import Regulations, such goods are not entitled to Modvat credit.
2. The matter has been examined by the Board. It is observed that capital goods credit scheme was introduced w.e.f. 1.3.1994. At that time, Modvat credit under the capital goods credit scheme was allowed on the following goods:-
(a) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final products;
(b) components, spare parts and accessories of the aforesaid machines, machinery, plant, equipment, apparatus, tools or appliances used for aforesaid purpose; and
(c) Moulds and dies, generating sets and weigh bridges used in the factory of the manufacturer.
3. The scope of the capital goods credit scheme was further enlarged w.e.f. 16.3.95, when a few more items were added in the list of capital goods eligible for Modvat credit. These new items were specified either by way of their description or by their classification.
4. Further, w.e.f. 23.7.96 Modvat credit has been allowed on specified capital goods which are used in the factory of the manufacturer. Under the scheme, eligible capital goods were specified by their classification and a few items were specified by their description.
5. In view of the above, the point for consideration is as to whether the capital goods imported prior to 1.3.1997, under Project Import Regulations were eligible for Modvat credit or not. In fact, Chapter 98 has been introduced only to facilitate the assessment of goods and the Capital goods imported under Project Import Regulations are classified under heading 98.01 only in view of the specific provision in Note 1 to Chapter 98 of the Customs tariff, which requires that the said goods, satisfying the prescribed conditions, shall be covered under the said Chapter, even though they may be covered by a more specific heading elsewhere in the Schedule.
6. Prior to 1.3.97, credit was available on capital goods specified in the Explanation to rule 57Q. Since there is no Chapter under Central Excise Tariff parallel to Chapter 98 of the Customs Tariff, the appropriate classification of the goods imported under Project Import Regulations, shall require to be determined within chapters 1 to 96 of Central Excise Tariff, for the purpose of allowing Modvat credit. Thus the crucial test for allowing Modvat credit would be whether the capital goods were covered, either in terms of classification or description, by the expression “capital goods” as defined in Explanation to rule 57Q or not.
7. However, difficulties may be experienced in some cases, in arriving the exact amount of the credit which is eligible for Modvat credit, where separate invoices indicating the c.i.f. value of eligible capital goods, are not available. To overcome the said difficulties, it has been decided to accept a certificate in the proforma enclosed, issued by an independent Cost Accountant, for the purpose of allowing Modvat credit on the capital goods imported under the Project Import Regulations, after necessary verification by the Department. The assessees may be allowed credit of duty, based on the estimated value of such capital goods, calculated at the rate of additional duty of customs as applicable for project imports at the relevant point of time.
Proforma Certificate for claiming Modvat credit on capital goods Imported
and received in the factory prior to 1.3.1997, under Project Import
1. Location of the Plant/Project
2. Name and address of the Manufacturer:
6. Total value of the Project:
7. Registration of the Contract
(i) Registration No.
(ii) Date of Registration:
(iii) Customs House of Registration:
8. Bill of Entry (B / E) particulars:
(i) B / E No.:
(iii) Assessable value of Capital goods imported:
(iv) Customs duty paid:
(a) Basic Customs duty:
(b) Special Customs duty:
(c) Additional duty customs:
9. Particulars of Capital goods eligible for Modvat credit:
Description of capital goods
As % age value
of B / E
Certificate that I/We have called for and have obtained all the information and explanations, which to the bast of our knowledge and belief were necessary for verification of the particulars given above. Certified further that, in our opinion:
(i) the assessable value of the capital goods eligible for Modvat credit as mentioned in column (3) of the Table above, gives a true and fair view of the assessable value of the said capital goods; and
(ii) the amount of eligible Modvat credit indicated in column (5) of the Table above gives a true and fair view of the eligible Modvat credit on the said capital goods.