Cenvat credit on debonding capital goods upheld where duty paid at conversion from EOU to DTA was treated as eligible credit.

A unit debonding from Export Oriented Unit status to Domestic Tariff Area can claim Cenvat credit on duty paid for indigenously procured capital goods, where the amount paid at debonding is treated as duty for Rule 3 purposes under the Cenvat Credit Rules, 2002. Reading Notification No. 22/2003-C.E. with the export policy and debonding procedure, the Tribunal accepted that the payment on such capital goods was not barred from credit. The view was also supported by an earlier decision. On that basis, the assessee's entitlement to credit was affirmed and the revenue's appeal was rejected.

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Issues: Whether a unit debonding from Export Oriented Unit status to Domestic Tariff Area is entitled to take Cenvat credit of the duty paid on indigenously procured capital goods.

Analysis: The credit dispute turned on whether the amount paid at the time of debonding could be treated as excise duty for the purpose of credit under Rule 3 of the Cenvat Credit Rules, 2002. The order under challenge accepted that, on a combined reading of Notification No. 22/2003-C.E. and the export policy and procedure provisions governing debonding, the amount paid on such capital goods represented duty payment and was not hit by any prohibition against credit. The Tribunal also noted that the issue was covered by an earlier decision supporting the same view.

Conclusion: The assessee was entitled to Cenvat credit of the duty paid on the capital goods at the time of debonding, and the revenue's appeal was rejected.

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