100% EOU Can Carry Forward Accumulated CENVAT Credit Upon De-bonding to DTA Unit: CESTAT [Read Order]

Stanadyne India Pvt. Ltd., the appellant, was earlier operating as a 100% EOU engaged in the manufacture of engine components. On 5 September 2013, the unit was de-bonded after paying the applicable duties and converted into a DTA unit. The appellant carried forward the accumulated CENVAT credit into its ER-1 return for the month of September 2013.

The department issued a show cause notice alleging that there was no provision under the Central Excise Act, 1944, or the CENVAT Credit Rules, 2004, allowing such credit transfer. It proposed recovery of the credit under Rule 14 of the CENVAT Credit Rules, read with Section 11A of the Act. The adjudicating authority confirmed the demand and held that the credit had lapsed. The Commissioner (Appeals) upheld the decision, and the appellant approached the CESTAT.

The appellant argued that the accumulated credit was lawfully carried forward and pointed out that in an earlier case involving the same issue, the Madras High Court had ruled in its favour. The appellant submitted that it had followed the same procedure and that the carry-forward of credit was a continuation of its existing entitlement.

The revenue argued that the facts of the present case were unclear and raised doubts about whether the appellant had de-bonded once or multiple times. It contended that the absence of explicit legal provision allowing the carry-forward of credit from EOU to DTA meant the credit had lapsed.

The two-member bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) agreed that the matter required further factual clarity. The tribunal observed that there was insufficient information to determine whether the de-bonding referred to in the current case was the same as the one decided by the High Court. The tribunal pointed out that if the appellant indeed had multiple EOUs, the High Court’s earlier judgment would apply squarely, making the denial of credit unsustainable.

The tribunal set aside the order passed by the Commissioner (Appeals) and remanded the matter back to the original authority. The adjudicating authority was directed to verify the relevant facts and decide the issue in line with the High Court’s ruling. The appeal was disposed of accordingly.

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