CENVAT credit transfer on debonding and merger was permitted where the credit was validly taken and rules imposed no bar.

Rule 10 of the CENVAT Credit Rules, 2004 was applied to permit transfer of unutilized CENVAT credit from a debonded 100% EOU to the merged DTA unit on amalgamation. The Tribunal noted that the credit had been validly taken, that no prohibition in the rule barred carry forward in these circumstances, and that accumulated credit cannot be denied or reversed merely because the unit changed status. On that basis, the merged unit was held entitled to continue the balance credit, and the demand and penalties were treated as unsustainable.

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Issues: Whether CENVAT credit lying unutilized in the books of a 100% EOU, after debonding and merger into a DTA unit, could be transferred and continued by the merged unit under Rule 10 of the CENVAT Credit Rules, 2004.

Analysis: Rule 10 permits transfer of unutilized CENVAT credit when a factory is transferred on account of sale, merger or amalgamation, and the Tribunal found no prohibition in the rule against such transfer in the circumstances of the case. The credit had been validly taken, and there was no dispute that it was not inadmissible merely because it stood in the account of the erstwhile EOU. Relying on earlier Tribunal decisions, the ruling reiterated that accumulated credit cannot be denied or reversed unless it was illegally or irregularly taken, and that the merged DTA unit was entitled to carry forward the balance credit.

Conclusion: The transfer and carry forward of the accumulated credit to the merged DTA unit was permissible, and the demand and penalties were unsustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: Validly taken CENVAT credit cannot be denied or reversed on debonding or merger merely because the unit changes its status, where the rules do not prohibit transfer and the credit is carried forward by the succeeding unit.

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