CENVAT credit on DTA-to-EOU conversion cannot lapse absent a corresponding prohibition in the later excise rules

Unutilized CENVAT credit on inputs and capital goods lying in a DTA unit could not be denied or treated as lapsed merely because the unit was converted into an EOU. The earlier bar under Rule 100H of the Central Excise Rules, 1944 had been rescinded, and the successor Central Excise Rules, 2001 and 2002 contained no corresponding prohibition; the prior circular could not continue to require reversal of credit in that situation. On that basis, the conversion alone did not defeat the credit, and the Department's appeal failed.

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Issues: Whether CENVAT credit on inputs and capital goods lying unutilized in a DTA unit could be denied or required to lapse upon conversion of the unit into an EOU.

Analysis: The dispute turned on the effect of the earlier circular issued under the Central Excise Rules, 1944 and the absence of any corresponding prohibition in the later Central Excise Rules, 2001 and 2002. Rule 100H of the 1944 Rules had disentitled an EOU from the Modvat scheme, but that regime had since been rescinded. The later rules contained transitional provisions and did not preserve any bar equivalent to Rule 100H. In that statutory setting, the circular could not continue to operate so as to require reversal or lapse of unutilized credit on conversion from DTA to EOU.

Conclusion: The credit could not be denied merely because of the conversion from DTA to EOU. The Department's appeal failed.

Ratio Decidendi: Where the earlier disabling provision has been rescinded and the successor excise rules contain no corresponding prohibition, an unutilized credit of the pre-conversion unit cannot be treated as lapsed or barred solely on conversion into an EOU.

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