Deemed Cenvat credit and refund are available for clearances to EOUs or merchant exporters, with limitation objection rejected.

Deemed Cenvat credit under Rule 11 of the Cenvat Credit Rules, 2002 and Notifications No. 53/2001-C.E.(N.T.) and No. 6/2002-C.E.(N.T.) was treated as available for final products cleared to 100% EOUs or merchant exporters, not only for direct export under bond, and unutilised accumulated credit could be refunded where it could not be adjusted against duty. The restrictive Revenue view was found inconsistent with the language and object of the notifications, so recovery of utilised credit was set aside. The limitation objection to the refund claim was also rejected because it was not raised in the show cause notice and the deemed-credit refund was not treated as time-barred.

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Issues: (i) Whether deemed Cenvat credit under the relevant notifications could be availed and refunded when the final products were cleared to 100% EOUs or merchant exporters and not directly exported under bond. (ii) Whether the refund claim for unutilised deemed credit was barred by limitation under the Central Excise Act, 1944.

Issue (i): Whether deemed Cenvat credit under the relevant notifications could be availed and refunded when the final products were cleared to 100% EOUs or merchant exporters and not directly exported under bond.

Analysis: The entitlement to deemed credit flowed from Rule 11 of the Cenvat Credit Rules, 2002 and Notifications No. 53/2001-C.E.(N.T.) and No. 6/2002-C.E.(N.T.). The notifications permitted credit on declared inputs at the time of clearance of the final products, and para 3 did not confine utilization or refund only to cases of direct export under bond. Clearances to EOUs and merchant exporters were treated as clearances which did not defeat the credit scheme, and where the accumulated credit could not be adjusted, refund was permissible. The restrictive view taken by the Revenue was found inconsistent with the language and object of the notifications.

Conclusion: The issue was decided in favour of the assessee. Deemed credit was held available, and the Revenue's demand for recovery of the utilised credit was set aside.

Issue (ii): Whether the refund claim for unutilised deemed credit was barred by limitation under the Central Excise Act, 1944.

Analysis: The limitation objection was rejected because it was not part of the show cause notice and, in any event, refund arising from deemed credit was held not to be deniable on limitation on the reasoning adopted from the cited precedent. The claim was therefore not treated as time-barred.

Conclusion: The issue was decided in favour of the assessee. The refund claim was held not to be barred by limitation.

Final Conclusion: The decision upheld the assessee's entitlement to deemed credit and refund on unutilised balance, while rejecting the Revenue's appeal against allowance of refund and setting aside the recovery demand.

Ratio Decidendi: Deemed Cenvat credit under the notified scheme is not restricted to final products directly exported under bond, and where accumulated credit cannot be adjusted against duty on final products cleared to EOUs or merchant exporters, refund is permissible; limitation cannot be pressed to deny such deemed-credit refund in the absence of a specific statutory bar in the notice and scheme.

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