MODVAT credit lapses on conversion to a 100% EOU, so unused balance cannot be claimed as refundable cash.

MODVAT credit standing in the account of a DTA unit lapses when the unit is converted into a 100% EOU, because the MODVAT scheme ceases to apply under Rule 100H of the Central Excise Rules, 1944. The remaining balance cannot be treated as refundable cash merely because the unit can no longer utilise it. A revenue circular was read consistently with this position, and the argument that the debit was akin to a pre-deposit did not alter the result, since any restored credit would also lapse after conversion. Refund of the MODVAT credit was therefore held inadmissible after conversion into a 100% EOU.

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Issues: Whether MODVAT credit lying in the account of a DTA unit could be refunded after the unit was converted into a 100% EOU.

Analysis: The appellants had converted their unit from DTA to 100% EOU, and once such conversion took place, the MODVAT scheme ceased to apply to them under Rule 100H of the Central Excise Rules, 1944. The balance credit could not be treated as refundable cash merely because the unit was no longer in a position to utilize it. The circular relied upon by the Revenue also supported the position that credit remaining in the balance of a DTA unit would lapse on conversion into a 100% EOU. The plea that the debit made in the MODVAT account was akin to pre-deposit did not alter the position, because any credit restored to that account would equally be liable to lapse after conversion.

Conclusion: Refund of the MODVAT credit was not admissible after conversion of the unit into a 100% EOU.

Final Conclusion: The denial of refund was upheld and the appeal failed.

Ratio Decidendi: Credit lying under the MODVAT scheme in the account of a DTA unit lapses on conversion into a 100% EOU and cannot be claimed as refundable cash once the scheme becomes inapplicable.

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