Modvat credit accumulated before conversion into a 100% EOU remained utilisable for duty on pre-conversion clearances.

Modvat credit accumulated when the enterprise operated as a domestic tariff unit was held utilisable after conversion into a 100% Export Oriented Unit for duty on clearances of goods manufactured before conversion. The Tribunal treated the Revenue's circular on capital goods as inapplicable to credit earned on duty-paid inputs, and read Rule 100H as restricting fresh availment by a 100% EOU rather than causing automatic lapse of existing credit. Distinct accounts, continued central excise registration, and departmental knowledge of the clearances supported the conclusion that no express prohibition barred utilisation, so the duty demand did not survive.

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Issues: Whether Modvat credit accumulated while the unit functioned as a Domestic Tariff Unit could be utilised after conversion into a 100% Export Oriented Unit for payment of duty on clearances of goods manufactured before conversion and whether such utilisation was contrary to the Central Excise and export-oriented unit regime.

Analysis: The goods and packing materials were manufactured when the unit was operating as a domestic unit, and the clearances were made with departmental knowledge. The Board circular relied upon by Revenue dealt with capital goods and did not govern credit earned on duty-paid inputs. Rule 100H restricted availing of Modvat credit by a 100% EOU, but the Tribunal held that once credit had already accumulated in the account, there was no rule shown to prohibit its utilisation for discharging duty liability. The Handbook of Procedures also contemplated a distinct identity and separate accounts where the same enterprise operated as both a domestic unit and an EOU, and the respondents had retained central excise registration.

Conclusion: The utilisation of accumulated Modvat credit was held to be permissible, and the Revenue's challenge failed.

Final Conclusion: The orders of the Commissioner (Appeals) were upheld and the duty demands did not survive.

Ratio Decidendi: Where credit has already accumulated in a domestic unit's account and no express provision mandates its lapse on conversion into a 100% EOU, such credit may be utilised to discharge duty on eligible clearances, especially when the enterprise maintains distinct accounts and the clearances are made under departmental knowledge.

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