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2015 (10) TMI 2508 - AT - Central ExciseReversal of Cenvat Credit on inputs lying in stock - Conversion of DTA unit to 100% EOU - Deemed removal of inputs - Held that - dispute has arisen from the morphing of the manufacturing operation as an Export Oriented Unit. - An infrequent occurrence, it is even more rare for such an occurrence to be accompanied by transfer of raw materials in this manner. That, probably, is one of the reasons for the absence of any reference to such a contingency in the CENVAT Credit Rules, 2002. It is more likely that it was not perceived as having an impact at all on revenue. The transformation does not alter the works undertaken in the unit. Nor is the statutory jurisdiction altered. Eligibility for CENVAT Credit remains unchanged except that, as an Export Oriented Unit, duty-free procurement is an alternative. Excise duty is fastened on goods and not on the status of the manufacturer; payment of duty and availment of credit of duty so paid is in relation to goods. As long as the goods on which CENVAT Credit has been taken are used in production, revenue is not jeopardized. Instead of procuring goods without payment of duty, the respondent has used already duty neutralized goods for manufacture of export goods. Had the CENVAT Credit been reversed by the erstwhile unit before the conversion, the newly minted Export Oriented Unit would be entitled to avail CENVAT Credit of like amount. These circumstances of revenue neutrality are a clear pointer to the rationale for redundancy of a specific provision for such an event in the CENVAT Credit Rules. - Demand is not sustainable - Decided against the revenue.
Issues Involved:
1. Validity of CENVAT Credit availed by the respondent prior to conversion to a 100% Export Oriented Unit (EOU). 2. Requirement for reversal of CENVAT Credit upon conversion to EOU. 3. Applicability of precedents and legal provisions regarding CENVAT Credit and EOUs. Issue-wise Detailed Analysis: 1. Validity of CENVAT Credit availed by the respondent prior to conversion to a 100% Export Oriented Unit (EOU): The Revenue's contention was that the respondent availed CENVAT Credit on raw materials which were later used by the 100% EOU, and such usage should have been preceded by reversal of the credit as per Rule 2(g) of CENVAT Credit Rules, 2002. The Tribunal observed that the transformation of the manufacturing unit into an EOU did not alter the statutory jurisdiction or the eligibility for CENVAT Credit. The Tribunal emphasized that excise duty is levied on goods, not on the status of the manufacturer, and as long as the goods on which CENVAT Credit was taken are used in production, the revenue is not jeopardized. The Tribunal held that the respondent's use of already duty-neutralized goods for manufacture of export goods did not necessitate reversal of CENVAT Credit. 2. Requirement for reversal of CENVAT Credit upon conversion to EOU: The Tribunal found that there was no statutory requirement for reversal of CENVAT Credit upon conversion of a DTA unit to an EOU. The Tribunal referred to the absence of a specific provision for such an event in the CENVAT Credit Rules, 2002, indicating that it was not perceived as having an impact on revenue. The Tribunal cited the decision in Sun Pharmaceutical Industries Ltd. v Commissioner of Central Excise, Pondicherry, where it was held that the credit availed inputs were not removed from the premises upon conversion to an EOU, and thus, no contravention of provisions occurred. The Tribunal concluded that the original authority's demand for reversal of CENVAT Credit was inapplicable. 3. Applicability of precedents and legal provisions regarding CENVAT Credit and EOUs: The Tribunal relied on several precedents, including Sandoz Pvt Ltd v Commissioner of Central Excise, Belapur, and Sun Pharmaceutical Industries Ltd. v Commissioner of Central Excise, Pondicherry, which supported the respondent's position. The Tribunal noted that the Hon'ble High Court of Bombay had affirmed the decision in Sandoz Pvt Ltd, which held that the assessee is entitled to avail the credit in balance as on the date of conversion. The Tribunal also referred to the CBEC Circular No. 77/99-Cus dated 18.11.1999, clarifying that Modvat credit availed and utilized before conversion to an EOU is not required to be reversed. The Tribunal concluded that there was no legal bar for a DTA unit to carry over inputs and CENVAT Credit balance upon conversion to an EOU. Conclusion: The Tribunal upheld the impugned order of the Commissioner of Central Excise (Appeals), Pune I, which set aside the lower authority's order confirming duty and imposing penalties on the respondent. The Tribunal found that the circumstances of revenue neutrality and the absence of statutory provisions requiring reversal of CENVAT Credit upon conversion to an EOU justified the respondent's actions. The appeal by Revenue was rejected, and the Tribunal pronounced its decision in court.
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