Modvat/Cenvat credit used before DTA-to-EOU conversion does not lapse; only unutilized balance may be hit by the circular.

Modvat/Cenvat credit lawfully availed and utilised by a DTA unit before conversion into an EOU does not lapse merely because of the conversion. The Board's circular distinguishes between credit already used in relation to inputs or other eligible items, which need not be reversed, and only the unutilized balance standing in the account on the date of conversion, which lapses. On the stated facts, the credit had been taken from the inputs account and duty had been paid from that credit, so the circular did not support disallowance. The credit disallowance was therefore unsustainable.

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Issues: Whether Modvat/Cenvat credit taken by a DTA unit before conversion into an EOU could be denied or treated as lapsed when the credit had been utilised in relation to inputs and stood reflected in the same account.

Analysis: The Board's circular clarified that credit availed on plant, machinery and equipment and utilised before conversion into EOU was not required to be reversed, while only unutilized credit lying in balance on the date of conversion would lapse. On the facts, the credit in question was shown to have been taken from the inputs account and duty had been paid from that credit. The circular, therefore, did not justify disallowance of the credit in the present case.

Conclusion: The disallowance of credit was unsustainable and the assessee was entitled to the credit.

Ratio Decidendi: Credit lawfully availed and utilised before conversion of a DTA unit into an EOU does not lapse merely because of the conversion; only unutilized balance credit is hit by the circular.

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