Modvat credit transfer on takeover upheld where manufacturing continuity and departmental silence justified deemed permission.

Unutilised Modvat credit may be transferred on takeover where the factory continues the same manufacturing operations, inputs and finished products, because eligibility already attached to the factory is not lost merely due to a change in management. A timely request for transfer, if left unanswered by the department for an unreasonably long period, may be treated as substantially compliant with the prior-permission requirement and deemed allowed. On that basis, the transfer of credit was upheld and the related demand and penalty could not be sustained.

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Issues: Whether the appellants were entitled to transfer the unutilized Modvat credit lying in the account of the erstwhile company after takeover, and whether permission for such transfer could be treated as deemed granted when the department did not respond within a reasonable time.

Analysis: The transfer of Modvat credit was considered in the context of a takeover where manufacturing operations, inputs, and finished products remained the same. The governing principle applied was that Modvat eligibility already determined for the factory does not stand defeated merely because of a change in management, so long as the operations and goods continue to be relatable to the pre-takeover position. The record also showed that permission was sought well in advance and that the department neither granted nor refused it for an extended period. In those circumstances, the procedural requirement of prior permission was treated as having been substantially complied with, and the departmental silence was held to justify treating permission as granted after a reasonable time.

Conclusion: The appellants were entitled to the transfer of the unutilized Modvat credit, and the demand and penalty could not be sustained.

Final Conclusion: The appeal succeeded because the credit transfer was upheld on the basis of continuity of eligibility after takeover and deemed permission arising from departmental inaction.

Ratio Decidendi: Where a factory continues with the same manufacturing operations after takeover, unutilized Modvat credit cannot be denied merely because ownership has changed, and a timely request for permission may be treated as allowed if the authority remains silent for an unreasonably long period.

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