Cenvat credit on factory transfer denied absent assumption of liabilities; penalty set aside as excessive on facts.

Unutilised Cenvat credit of a predecessor cannot be claimed by a purchaser of a factory where the transfer deed shows possession was taken without assuming prior liabilities; a later undertaking inconsistent with the deed does not override its express terms, so denial of credit is justified. The penalty, however, was found excessive on the facts and was set aside, giving the assessee only partial relief.

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Issues: (i) Whether the purchaser of a factory, having taken possession under a transfer deed without assuming prior liabilities, was entitled to the unutilised Cenvat credit lying in the account of the previous manufacturer; (ii) Whether the penalty imposed was sustainable.

Issue (i): Whether the purchaser of a factory, having taken possession under a transfer deed without assuming prior liabilities, was entitled to the unutilised Cenvat credit lying in the account of the previous manufacturer.

Analysis: Rule 8 of the Cenvat Credit Rules permits credit to be taken by the new manufacturer in a case of sale of a factory only where the transferee has taken over the liabilities of the unit. The transfer deed in the present case showed that possession was taken without any liability, and there was no amendment to that deed. A later undertaking before the Superintendent of Central Excise could not override the express terms of the transfer deed.

Conclusion: The denial of the Cenvat credit was justified and the assessee was not entitled to take the unutilised credit.

Issue (ii): Whether the penalty imposed was sustainable.

Analysis: In view of the facts and circumstances of the case, the imposition of penalty was considered excessive.

Conclusion: The penalty was set aside.

Final Conclusion: The credit disallowance was upheld, but the penalty was removed, resulting in only partial relief to the assessee.

Ratio Decidendi: Where a factory is transferred without the transferee assuming prior liabilities, unutilised Cenvat credit of the predecessor cannot be claimed merely on the basis of a later undertaking inconsistent with the transfer deed.

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