2015 (9) TMI 1487 - AT - Central Excise

100% EOU - debonding of unit - irregular credit by way of transfer of credit from EOU unit lying unutilized in the accounts of EOU unit at the time of de-bonding and exit from the EOU - whether the contention of Department that an EOU when it is converted from EOU to DTA unit, it (successor DTA unit) cannot get the credit of balance in Cenvat account of EOU on date of its conversion to DTA unit, by way of transfer, is justified? - imposition of penalty u/r 15 of Cenvat Credit Rules, 2004 - reliance placed on the decision of the case GTN Exports Ltd. v. CCE 2008 (7) TMI 377 - CESTAT, CHENNAI - Held that - In this case CESTAT allowed an EOU to take the credit of its predecessor domestic tariff area unit (DTA unit) citing that Rule 10 of Cenvat Credit Rules did not prohibit availment of such credit at the time of conversion of DTA to EOU. By applying the same rational we are unable to understand how the department would prohibit an EOU, when it is converting itself to a DTA scheme, to take the credit of the balance credit lying with the predecessor EOU. There is no logic and rational in the department s contention that Rule 10 of Cenvat Credit Rules, 2004 does not cover such a situation. The CESTAT Chennai s decision in GTN Exports is very clear that Rule 10 of Cenvat Credit Rules did not prohibit availment of balance credit by an EOU at the time of its conversion to EOU from the DTA; by the same logic an EOU when it is converted to DTA unit would be entitled to take the balance credit lying in the Cenvat account of EOU at the time of its conversion to DTA unit. In other words a successor DTA unit can get the transfer credit of the unutilized credit lying with its predecessor unit, which is an EOU in the present case - the appeal is allowed with consequential benefits and when appeal succeeds in above terms penalty is also not sustainable.

Summary

Issues:
1. Appellant's liability for payment of duties upon de-bonding an EOU unit.
2. Dispute regarding transfer of Cenvat credit from de-bonded EOU unit to successor DTA unit.
3. Impugned order demanding Cenvat credit and imposing penalty.

Analysis:

Issue 1:
The appellant, a manufacturer of compressors, de-bonded their EOU unit and paid applicable duties. The Assistant Commissioner demanded payment of duties for capital goods, computer workstation, gauges, and tools, which the appellant claimed to have paid. The issue arose when the department alleged irregular credit transfer from the EOU unit upon de-bonding. Formal proceedings ensued with a show cause notice for recovery of Cenvat credit, resulting in an order confirming the demand of duty along with interest and penalty.

Issue 2:
The main contention of the appellant was the transfer of unutilized Cenvat credit from the de-bonded EOU unit to the successor DTA unit. The appellant argued that there was no provision restricting such transfer and cited a case where a similar transfer was allowed by the Tribunal. They emphasized that there was no legal restriction on transferring unutilized credit upon de-bonding from an EOU scheme. The Department contended that the transfer was not covered under Rule 10 and accused the appellant of false representation, leading to a penalty under Rule 15(1) of the Cenvat Credit Rules, 2004.

Issue 3:
Upon considering the arguments from both sides, the Tribunal analyzed the case law and precedent set in GTN Exports Ltd. v. CCE, where the Tribunal allowed an EOU to take credit of its predecessor DTA unit upon conversion. The Tribunal found no logical basis for prohibiting an EOU from transferring unutilized credit to its successor DTA unit. Relying on the decision in GTN Exports Ltd., the Tribunal allowed the appeal, granting consequential benefits and concluding that the penalty was not sustainable.

In conclusion, the Tribunal allowed the appeal, permitting the transfer of unutilized Cenvat credit from the de-bonded EOU unit to the successor DTA unit, based on the precedent set in GTN Exports Ltd. v. CCE. The decision highlighted the absence of legal restrictions on such transfers and deemed the penalty unsustainable in this context.