Cenvat credit on 100% EOU inputs must follow the rule in force for the relevant period, not a later amended formula.

Cenvat credit on inputs received from a 100% Export Oriented Unit had to be computed under Rule 3(6)(a)(ii) of the Cenvat Credit Rules, 2001 as it stood during the relevant period, limiting credit to the additional duty of customs leviable on like goods under Section 3 of the Customs Tariff Act, 1975. The later amended formula based on fifty per cent of the specified value did not apply to the disputed period. On the facts, the credit taken did not exceed the admissible limit, so the demand for reversal and the penalty were unsustainable and the credit was rightly allowed.

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Issues: Whether Cenvat credit on inputs received from a 100% Export Oriented Unit was to be restricted to 50% of the normal duty or to the additional duty of customs leviable on like goods under the applicable rule.

Analysis: The applicable provision during the relevant period was Rule 3(6)(a)(ii) of the Cenvat Credit Rules, 2001. It restricted credit on inputs or capital goods produced by a 100% EOU to the extent equal to the additional duty leviable on like goods under Section 3 of the Customs Tariff Act, 1975. The later formulation of the rule, which computed credit at fifty per cent of the specified value, was not the governing text for the period in dispute. On the facts, the credit availed by the respondent did not exceed the amount admissible under the rule in force from August 2001 to February 2002.

Conclusion: The demand for reversal of credit and the penalty were not sustainable, and the respondent's credit was correctly allowed.

Ratio Decidendi: Cenvat credit on inputs from a 100% EOU must be determined strictly by the version of Rule 3(6)(a)(ii) in force for the relevant period, and credit cannot be curtailed by applying a later amended formula.

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