Full Cenvat credit on 100% EOU supplies to DTA unit held admissible; Rule 3(7)(a) restriction found inapplicable.

Full Cenvat credit was held admissible on duty-paid clearances by a 100% EOU supplier to a Domestic Tariff Area unit where the supply also suffered Central Sales Tax. The Tribunal noted that, because the supplier cleared the goods under the notification governing DTA clearances, the conditional formula in Rule 3(7)(a) of the Cenvat Credit Rules, 2004 did not apply. The duty shown in the supplier's invoices was therefore available as full credit, consistent with the Tribunal's earlier view on the same issue. The demand was unsustainable and the appeal succeeded.

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Issues: Whether the appellant was entitled to full cenvat credit of the duty paid by a 100% Export Oriented Unit supplier, and whether the formula and restriction under Rule 3(7)(a) of the Cenvat Credit Rules, 2004 applied in the facts of the case.

Analysis: The supply was made by a 100% EOU to the appellant on payment of Central Sales Tax, and the unit had opted to pay duty under the notification governing clearances to Domestic Tariff Area units. In such a situation, the case fell under the relevant serial of the notification, and the conditional formula prescribed in Rule 3(7)(a) for taking cenvat credit did not apply. The duty reflected in the supplier's invoices was therefore available as full credit. The Tribunal also followed its earlier view on the same issue.

Conclusion: The appellant was entitled to full cenvat credit and the restriction under Rule 3(7)(a) was inapplicable.

Final Conclusion: The demand could not be sustained and the appeal succeeded.

Ratio Decidendi: Where goods are cleared by a 100% EOU to a Domestic Tariff Area unit on payment of the prescribed duty and the supply suffers Central Sales Tax, the credit restriction formula under Rule 3(7)(a) of the Cenvat Credit Rules, 2004 does not apply and full cenvat credit is admissible.

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