2026-VIL-1637-CESTAT-CHE-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise – Eligibility to CENVAT Credit upon debonding from Export Oriented Unit to Domestic Tariff Area unit – Appellant was engaged in manufacture of cotton terry towels under EOU scheme and subsequently exited the EOU scheme by debonding procedure with permission from Development Commissioner, MEPZ, and became a DTA unit at the same premises – At time of debonding, appellant paid applicable duties on imported and indigenous capital goods, inputs and consumables lying with the unit and availed CENVAT credit of duties so paid – Department alleged that appellant had deliberately exited EOU scheme and availed inadmissible credit with intention of obtaining rebate on exported finished goods – Whether upon debonding and commencement of manufacture as Domestic Tariff Area unit, appellant is entitled to avail CENVAT credit of eligible duties paid at debonding on raw materials, inputs and capital goods under Rule 3 read with Rule 9 of CCR, 2004 – HELD – Upon debonding and commencement of manufacture as Domestic Tariff Area unit, appellant was entitled to avail CENVAT credit of eligible duties paid at debonding on inputs and capital goods. Fact that goods had originally been procured or held without payment of duty while operating as EOU does not disentitle appellant from taking credit of duty subsequently paid at time of debonding. Eligibility under Rule 3 and compliance with documentary requirements of Rule 9 must be considered together - Where duty paid at debonding is eligible duty under Rule 3 and prescribed documentary requirements are satisfied, credit cannot be denied merely because goods had earlier been held as EOU. Proviso to Rule 3(1) inserted by Notification No. 35/2008 cannot restrict credit only to amount of Central Excise duty on capital goods - The decision of Tribunal in AVO Carbon case relied upon by Revenue was overruled by Hon'ble Madras High Court in Stanadyne Amalgamations case. Following consistent position in subsequent Tribunal decisions, CENVAT credit lying in balance on date of debonding could be transferred and utilised by DTA unit. Department's allegation that appellant deliberately exited scheme to obtain inadmissible credit is without merit. Assessee is free to manage its business in its own best interest and department cannot speculate on commercial decisions so long as no blame worthy conduct is involved – Appeal of appellant is allowed and appeal of Commissioner is rejected
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