Cenvat credit on de-bonded EOU goods upheld where notional transfer supported entitlement and interest demand failed

Cenvat credit on duty paid inputs and capital goods of a de-bonded 100% EOU was correctly availed by the domestic unit even though the debonding certificate had not yet been issued. Because both units operated in the same and there was no separate EOU registration, the goods were treated as having moved notionally to the DTA unit despite the absence of physical removal or a separate invoice-based transfer. As the credit itself was validly taken after payment of applicable duties on debonding, the demand for interest failed because its basis disappeared.

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Issues: Whether Cenvat credit taken by the domestic unit on duty paid on inputs and capital goods of the de-bonded 100% EOU, before issuance of the debonding certificate, was correctly availed and whether interest was demandable.

Analysis: The units were located in the same premises and there was no separate registration for the EOU. Physical removal of the inputs and capital goods had not taken place, but the credit was taken after payment of the applicable duties on debonding. In these circumstances, the movement of goods was treated as having been effected notionally to the DTA unit, and the absence of separate registration or invoice-based transfer procedure was held not to negate the entitlement to credit. Since the credit itself was found to be properly taken, the foundation for demanding interest did not survive.

Conclusion: The credit was held to be correctly availed and the demand of interest was not sustainable, in favour of the assessee.

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