CENVAT credit on DTA-to-EOU conversion remained usable where it was validly earned before conversion.

A unit converting from DTA to EOU was not required to reverse validly earned unutilized CENVAT credit, because no provision barred carrying forward credit already accumulated while operating as a manufacturer. The Tribunal treated the departmental circular as insufficient to prohibit use of that balance after conversion, and held that the credit remained available to the appellant. The demand and denial of credit were therefore set aside, and the appellants were allowed to utilise the credit on conversion.

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Issues: Whether the appellants were entitled to utilize the unutilized CENVAT credit lying on the date of conversion of the unit from DTA to EOU, and whether the demand and expungement of such credit were sustainable.

Analysis: The Tribunal noted that the issue was covered by earlier decisions consistently holding that there was no provision requiring a DTA unit, on conversion into an EOU, to reverse the credit balance validly earned while operating as a manufacturer. The balance credit continued to remain available, and the fact that EOUs could take CENVAT credit under the later notification did not take away the availability of credit already earned. The circular relied upon by the department was not treated as creating a prohibition against use of such credit after conversion.

Conclusion: The appellants were entitled to utilize the unutilized credit on conversion from DTA to EOU, and the orders denying credit and raising demand were set aside in their favour.

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