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Issues: Whether MODVAT/CENVAT credit taken on capital goods and inputs was required to be reversed when those goods were transferred to a 100% EOU created within the same factory premises.
Analysis: The transfer was held not to amount to removal from the factory premises in the sense contemplated by Rule 3(4) of the Cenvat Credit Rules, 2002. The 100% EOU was carved out within the same premises, carried the same name, and there was no real transfer of goods to a distinct outside unit. The Court relied on prior Tribunal decisions holding that, in such circumstances, credit reversal is not warranted and the situation is revenue neutral because any credit reversed by the DTA unit would be available to the EOU. Decisions dealing with actual sale or physical removal to another entity were distinguished on facts.
Conclusion: Reversal of MODVAT/CENVAT credit was not required, and the demand, interest, and penalties could not be sustained. The appeal succeeded in favour of the assessee.
Ratio Decidendi: Where capital goods and inputs remain within the same manufacturing premises after conversion of part of the unit into a 100% EOU, the transaction is not treated as removal attracting Rule 3(4) of the Cenvat Credit Rules, 2002, and credit reversal is not exigible.
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