CENVAT credit on inputs before EOU conversion need not be reversed absent an express rule requiring reversal.

CENVAT credit taken on raw materials before conversion of a manufacturing unit into a 100% Export Oriented Unit did not require reversal merely because the unit thereafter operated as an EOU and used the inputs in manufacture. The unit remained the same establishment, the credit attached to the goods was not altered by the conversion, and the materials were not removed from the premises in the sense contemplated by the credit rules. In the absence of any express provision in the CENVAT Credit Rules, 2002 mandating reversal on conversion, the demand could not be sustained.

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Issues: Whether CENVAT credit validly availed on raw materials before conversion of the unit into a 100% Export Oriented Unit was required to be reversed merely because the unit thereafter functioned as an EOU and used those inputs in manufacture.

Analysis: The unit remained the same manufacturing establishment after conversion, and the statutory character of the goods and the credit attached to them did not change merely because the unit became an EOU. The materials were not removed from the premises in the sense contemplated by the credit rules, and there was no revenue loss because the credit had already been utilised and, even otherwise, the converted unit would have been entitled to credit of the same amount. In the absence of any express provision in the CENVAT Credit Rules, 2002 requiring reversal on conversion, the demand could not be sustained. The decision followed the settled view approved in earlier Tribunal and High Court decisions on identical facts.

Conclusion: The demand for reversal of credit was not maintainable and the Revenue's appeal failed.

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