Removal of capital goods to another factory triggers credit reversal; penalty and interest cannot apply retrospectively.

Removal of capital goods from one factory to another, including during shifting of the unit, was treated as removal for home consumption under Rule 57S(1), so credit reversal was upheld; the separate shifting facility under Rule 57S(4) did not limit that consequence. Penalty and interest, however, could not be imposed under Sections 11AC and 11AB or Rule 57U for a period before those provisions came into force, so those components were deleted. The duty-related demand therefore survived, while the penal and interest liabilities failed.

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Issues: (i) Whether removal of capital goods from one factory to another, including in the course of shifting the unit, amounted to removal for home consumption so as to attract reversal of credit under Rule 57S(1) of the Central Excise Rules, 1944. (ii) Whether penalty and interest could be sustained under Sections 11AC and 11AB of the Central Excise Act, 1944, and under Rule 57U of the Central Excise Rules, 1944, for a period prior to their introduction.

Issue (i): Whether removal of capital goods from one factory to another, including in the course of shifting the unit, amounted to removal for home consumption so as to attract reversal of credit under Rule 57S(1) of the Central Excise Rules, 1944.

Analysis: The provision governing capital goods required reversal of credit when such goods were removed for home consumption. The phrase was construed broadly and was held not to be confined to sale. Removal from one factory to another within the country was treated as removal for home consumption, and the fact that the goods had already been used in manufacture did not take the case out of the rule. The separate facility for shifting capital goods to another factory under Rule 57S(4) operated independently and did not dilute the application of sub-rule (1).

Conclusion: The demand for reversal of credit on the capital goods was upheld against the assessee.

Issue (ii): Whether penalty and interest could be sustained under Sections 11AC and 11AB of the Central Excise Act, 1944, and under Rule 57U of the Central Excise Rules, 1944, for a period prior to their introduction.

Analysis: The later enactment of penal and interest provisions could not be applied to a period anterior to their commencement. The corrigendum invoking Sections 11AC and 11AB did not invalidate the notice for recovery of duty, but the imposition of penalty and recovery of interest for the earlier period was not legally sustainable. The same prospective limitation applied to the invocation of Rule 57U in the circumstances of the case.

Conclusion: Penalty and interest were set aside in favour of the assessee.

Final Conclusion: The duty demand on the capital goods was sustained, but the penal and interest components were deleted, resulting in partial relief to the assessee.

Ratio Decidendi: Removal of capital goods from one factory to another is removal for home consumption for purposes of credit reversal, and penalty or interest provisions cannot be applied retrospectively to a period preceding their introduction.

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