Transfer of Modvat credit on duty-paid machinery upheld where machinery moved to another unit after factory conversion.

Credit on duty-paid machinery remained available to the receiving unit when the machinery was transferred after conversion of the original unit into a 100% export-oriented unit. Rule 57S(5) was treated as permitting transfer of credit in situations involving shifting of a factory and similar changes, so credit earlier taken at the originating unit could be carried to the transferee unit on transfer of the machinery. The disallowance of credit was therefore held unjustified, and restoration of the credit was directed.

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Issues: Whether credit on duty paid machinery transferred from one unit to another after conversion of the original unit into a 100% export oriented unit was admissible under Rule 57S(5).

Analysis: Rule 57S specifically permits transfer of credit in situations involving shifting of a factory and similar changes. The machinery in question was duty paid and was transferred from the Rajna unit, after its conversion into an export oriented unit, to the Bhongir unit. Since the credit had earlier been taken at the originating unit and was sought to be taken at the receiving unit upon transfer, disallowance of the credit was not justified.

Conclusion: The credit was admissible and the disallowance was ? No, remove. The appeal was allowed and restoration of the credit was directed.

Ratio Decidendi: Credit on duty paid machinery remains available to the receiving unit when the machinery is transferred in circumstances covered by the rule permitting transfer of credit, including shifting of a factory.

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