EOUs -CENVAT Credit on the duty paid on Capital goods at the time of de-bonding to be allowed
The Government has amended the CENVAT Credit Rules to stipulate that,
“the CENVAT credit shall be allowed to be taken of the amount equal to central excise duty paid on the capital goods at the time of debonding of the unit in terms of the para 8 of notification No. 22/2003-Central Excise, dated, the 31 st March, 2003.”
When an EOU gets debonded and becomes a DTA unit, it is made to pay the duty on the Capital Goods purchased free of duty and the natural corollary is that such duty paid should be allowed as credit to the DTA unit.
The Board created a confusion in 1996 by issuing Circular no. 185/19/96-CX dated 19/03/96 clarifying that MODVAT Credit can be allowed to the extent CVD paid on imported capital goods or procured from domestic market. As is well known there cannot be any CVD paid on Capital Goods procured from the domestic market. The alert Central Excise officer was quick to deny the Credit equal to the Central Excise Duty paid on Capital Goods procured from the domestic market.
The 12 year old dispute is now sought to be settled.
The Tribunal of course had already decided this issue in favour of the assessee. In the Rajdhani Fab Pvt Ltd case - , the Tribunal extracted the order of the Commissioner (Appeals),
In this regard, it is seen that the Board vide Circular no. 185/19/96-CX dated 19/03/96 has clarified that MODVAT credit can be allowed to the extent of CVD paid on imported capital goods or procured from domestic market and this does not talk of denial of MODVAT credit of the amount equal to the Central excise duty paid at the time of de-bonding of capital goods. At the time of de-bonding the amount equal excise duty which is paid has to be treated as payment of excise duty only. This is sufficiently clear on a combined reading of para 6.20 of Exim Policy 2002-07 and para 29.1 of Appendix 14-1 of Exim Policy 2002-07. There is, therefore, no merit in the stand of the department. In view of the above, the appellants are entitled to CENVAT credit of Central Excise duty paid at the time of de-bonding of the capital goods. As the demand does not survive, interest and penalty also do not survive."
and agreed with it.
The Tribunal's order is now given legal sanctity. The Government should have clarified that this amendment has retrospective effect to avoid further litigation.
Notification NO. , Dated: September 24, 2008