Cenvat credit on EOU inputs depends on the prescribed formula; cess embedded in duty computation is not automatically disallowable.

For inputs received from a 100% EOU, Cenvat credit must be computed strictly under Rule 3(7) of the Cenvat Credit Rules, 2004 and the prescribed formula. The Tribunal accepted that the disputed education cess and secondary and higher education cess amounts were not credit wrongly taken on customs duty, but only cess elements worked out in the duty-calculation process. On that basis, credit was allowed for the amounts other than Rs. 3,544 and Rs. 1,772, which were held inadmissible. The appeal therefore succeeded to the extent of the balance credit, with only the two specified cess components disallowed.

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Issues: Whether, in respect of inputs cleared by a 100% export oriented unit, the appellant was entitled to Cenvat credit on the cess amounts included in the customs duty computation, and whether only the cess calculated on customs duty as part of the excise-duty formula was inadmissible.

Analysis: Rule 3(7) of the Cenvat Credit Rules, 2004 governs credit in respect of inputs received from a 100% EOU and requires the credit to be worked out on the prescribed formula. On the sample invoice, the disputed amounts represented education cess and secondary and higher education cess computed on customs duty for the purpose of arriving at the duty payable, whereas the actual credit admissibility had to be tested with reference to the formula and the manner in which the duty elements were worked out. The Tribunal accepted the appellant's explanation that the disputed amounts of Rs. 3,544 and Rs. 1,772 were not credit taken on customs duty, but only cess computed in the duty calculation process, and held that the balance credit was admissible.

Conclusion: The appellant was entitled to Cenvat credit on the amounts other than Rs. 3,544 and Rs. 1,772, which were held inadmissible.

Final Conclusion: The appeal succeeded to the extent that the credit was substantially allowed, with only the two specified cess components disallowed.

Ratio Decidendi: In cases involving inputs from a 100% EOU, credit must be determined strictly in accordance with the prescribed formula, and cess elements embedded in the customs-duty computation are not automatically disallowable unless they represent inadmissible credit under that formula.

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