CENVAT credit on SAD paid during EOU de-bonding cannot be denied where the exemption notification is inapplicable.

SAD paid on de-bonding of a 100% EOU was held creditable where no exemption under the relevant customs notification was availed at the time of import. The exemption notification relied on by the department was treated as inapplicable to goods cleared on de-bonding, so the goods could not be treated as exempt for the purpose of denying CENVAT credit. On that basis, the demand was unsustainable and the assessee's entitlement to credit was upheld.

---

---

Issues: Whether SAD paid at the time of de-bonding of a 100% EOU was eligible for CENVAT credit, and whether the exemption under Notification No. 23/03-CE dated 31.03.2003 could be invoked to deny such credit.

Analysis: The appellant had paid Special Additional Duty on imported goods at the time of de-bonding without availing any exemption under Notification No. 19/06-Cus dated 01.03.2006. On that basis alone, the duty paid was creditable. In any event, the cited exemption notification was held to be inapplicable to goods cleared on de-bonding, so the department's premise that the goods were exempt and therefore no credit was available could not be sustained.

Conclusion: The appellant was entitled to CENVAT credit of the SAD paid on de-bonding, and the demand based on the alleged availability of exemption failed.

Final Conclusion: The demand was set aside and the appeal was allowed in favour of the assessee.

Ratio Decidendi: Where SAD is paid on de-bonding of a 100% EOU without availing exemption, and the relied-upon exemption notification is inapplicable to de-bonding, CENVAT credit cannot be denied on the footing that the goods were exempt.

---