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of <h1>Appellant's CENVAT credit valid after conversion to 100% EOU; no violation of Rule 3(1), 3(4) CCR or Rule 11 CER</h1> <h3>SUN PHARMACEUTICALS INDUS. LTD. Versus COMMR. OF C. EX., PONDICHERRY</h3> CESTAT (Chennai) - AT held that the appellant did not remove credit-availed inputs when it converted to an EOU, so violations of Rule 3(1), 3(4) of CCR ... CENVAT credit - removal of inputs without raising invoices - conversion to EOU without payment of duty equal to the credit availed at the time of receipt of the inputs - Violation of Rule 3(1) and 3(4) of CCR - HELD THAT:- We find that the credit availed inputs were not removed in the instant case from the premises of Sun when Sun got converted into an EOU. Therefore, the contravention of provisions of Rule 3(1) and 3(4) of CCR and Rule 11 of CER alleged in the show cause notice has not occurred. Therefore, the consequential demand of cenvat credit relating to the inputs at the time of conversion of Sun into an EOU and the liability to penalties proposed did not exist. Therefore, the orders of the lower authorities are not sustainable. We find that at the material time the CER or CCR did not contain any provision barring the 100% EOUs from availing cenvat credit or utilizing the same for payment of duty on excisable goods removed to the DTA or for payment of duty on goods exported under claim for rebate. Also there exists no bar for a DTA unit carrying over inputs and the cenvat credit balance in its accounts when it got converted into an EOU. In the absence of provisions requiring the DTA unit to reverse the credit balance at the time of its conversion into an EOU, the above observations of the Tribunal apply. Therefore, the impugned demand and penalties are not sustainable. In the result, the impugned order is set aside and this appeal allowed. Issues:Violation of Rule 3(1) and 3(4) of Cenvat Credit Rules, 2002 (CCR) and Rule 11 of Central Excise Rules, 2002 (CER) by transferring stock of inputs during conversion to Export Oriented Unit (EOU). Demand of cenvat credit pertaining to inputs transferred to EOU, interest, and penalties. Interpretation of Rule 17 of CER regarding removal of excisable goods from EOU to Domestic Tariff Area (DTA) and lapsing of unutilized cenvat credit. Challenge to recovery of cenvat credit balance and penalties. Applicability of Circular No. 77/99-Cus. on lapsing of unutilized credit on conversion from DTA to EOU. Entitlement of EOU to cenvat credit and utilization for duty payment.Analysis:The case involved M/s. Sun Pharmaceuticals Industries Ltd. converting to a 100% EOU and facing allegations of violating CCR and CER by transferring inputs without paying duty. The original authority demanded cenvat credit balance and imposed penalties, upheld by the Commissioner (A) except for one penalty. Sun challenged the order, arguing their entitlement to cenvat credit pre-conversion and eligibility post-conversion. The Tribunal found that Sun did not contravene the rules as alleged, as the availed inputs were not removed during conversion, rendering the demands and penalties baseless.Regarding the interpretation of Rule 17 of CER, the Tribunal noted the amendments allowing EOUs to use cenvat credit for removal to DTA and the lapsing of unutilized credit on conversion from DTA to EOU as per Circular No. 77/99-Cus. Sun contested the recovery of cenvat credit balance based on the circular's applicability post-rescinding of CER '44. The Tribunal highlighted the absence of provisions barring EOUs from availing cenvat credit, citing precedents and CBEC Circulars supporting the EOUs' entitlement to cenvat credit.The Tribunal emphasized that the rules did not mandate reversal of credit balance on DTA conversion to EOU, aligning with previous Tribunal decisions. Referring to cases like Waterbase Ltd. and CCE, Rajkot v. Ashok Iron and Steel Fabricators, the Tribunal concluded that the demand and penalties were unsustainable, setting aside the impugned order and allowing Sun's appeal based on the legal provisions and precedents cited.In conclusion, the Tribunal's detailed analysis addressed the alleged violations, applicability of Circular No. 77/99-Cus., entitlement of EOUs to cenvat credit, and the absence of provisions mandating reversal of credit balance on conversion. The judgment emphasized compliance with legal provisions, precedents, and circulars to rule in favor of Sun Pharmaceuticals Industries Ltd., setting aside the demands and penalties imposed by the lower authorities.
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