Cenvat credit for 100% EOUs upheld where duty paid inputs remained eligible despite some duty-free procurement.

Rule 3 of the Cenvat Credit Rules, 2004 allows credit on duty paid inputs used in or in relation to manufacture and does not exclude 100% export oriented units. A Board circular cannot curtail the scope of the Rules or a notification. Notification No. 18/2004-C.E. (N.T.) was confined to the mode of duty payment through PLA or Cenvat credit and did not impose an exclusive choice between duty-free procurement and duty-paid procurement. Accordingly, a 100% EOU remained entitled to Cenvat credit on duty paid inputs such as furnace oil, and disallowance of the credit was unsustainable.

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Issues: Whether a 100% Export Oriented Unit was entitled to take Cenvat credit of duty paid on inputs such as furnace oil merely because it also procured some goods duty-free and in the face of a Board circular suggesting an option between duty-free procurement and procurement on payment of duty.

Analysis: Rule 3 of the Cenvat Credit Rules, 2004 confers eligibility for Cenvat credit on duty paid inputs used in or in relation to manufacture and does not carve out any exception for 100% EOUs. A circular cannot curtail or alter the scope of the Rules or Notifications. Notification No. 18/2004-C.E. (N.T.) did not take away credit eligibility; it only facilitated payment of duty through either PLA or Cenvat credit. The circular, read plainly, did not require an EOU to choose exclusively between all duty-free procurement and all duty-paid procurement, and the use of duty-paid inputs by EOUs remained permissible.

Conclusion: The 100% EOU was entitled to Cenvat credit on the duty paid inputs, and the disallowance of credit was unsustainable.

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