Cenvat Credit Utilisation on EOU Debonding: excise duty on indigenous stock may be paid from valid credit, not cash.

On partial debonding of a 100% EOU, excise duty foregone on duty-free indigenous goods lying in stock could be discharged from validly availed Cenvat credit, because the governing notifications and the Cenvat scheme did not require cash payment. The Court recognised the distinction between customs duty on imported goods and excise duty on indigenous goods, and applied the settled principle that valid Cenvat credit is indefeasible and available for utilisation. Departmental insistence on payment in cash was therefore unsustainable, and the demand was quashed to the extent it compelled cash payment instead of permitting credit utilisation.

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Issues: Whether, on partial debonding of a 100% Export Oriented Undertaking, the excise duty foregone on duty-free indigenous goods lying in stock could be paid from legally availed Cenvat credit instead of in cash.

Analysis: The petitioners had validly accumulated Cenvat credit and sought to use it for discharging the excise duty liability arising on debonding. The relevant notifications and the Cenvat scheme did not impose a requirement that such amount must necessarily be paid in cash. The distinction between customs duty on imported goods and excise duty on indigenous goods was recognised, and the Court also relied on the settled principle that validly availed credit is indefeasible and available for utilisation. The Court further noted that similarly situated assessees had been permitted to discharge such liability from Cenvat credit, and that forcing cash payment would serve no legal purpose.

Conclusion: The petitioners were entitled to pay the excise duty foregone from legally availed Cenvat credit, and the departmental insistence on cash payment was unsustainable.

Final Conclusion: The impugned demand requiring cash payment was quashed, and the petition succeeded to the extent of permitting utilisation of Cenvat credit for the debonding-related excise liability.

Ratio Decidendi: Where a validly availed Cenvat credit is available and the governing scheme does not expressly require cash payment, the credit may be used to discharge the excise duty liability arising on debonding of a 100% EOU.

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