Modvat credit on capital goods transfer requires only reversal of credit, not fresh duty at removal rate.

On removal or transfer of capital goods on which Modvat credit had been taken, the liability is confined to reversal of the credit benefit already availed. The Tribunal held that duty is not payable at the prevailing rate on the date of clearance as if the goods were newly manufactured. Relying on the applicable rule and supporting case law, it accepted the view that the correct treatment is reversal of the credit at the relevant stage, not a fresh duty levy on transfer. The revenue appeal was rejected and the relief granted to the assessee was sustained.

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Issues: Whether, on removal or transfer of capital goods on which Modvat credit had been taken, the assessee was required only to reverse the credit benefit availed or to pay duty at the rate prevailing on the date of removal as if the goods were manufactured afresh.

Analysis: The Tribunal noted that the applicable rule and the case law on the subject supported the view that, on transfer of capital goods, what is required is reversal of the benefit of credit already availed. The Department's contention that duty had to be paid on removal of capital goods at the then prevailing rate as if the goods were manufactured by the assessee was held to be without merit. The Tribunal agreed with the Commissioner (Appeals) that the reversal at the time of receipt of the capital goods or inputs was the correct approach.

Conclusion: The assessee was required only to reverse the credit benefit availed, and not to pay duty on removal of the capital goods at the rate prevailing on the date of clearance.

Final Conclusion: The revenue appeal was rejected, and the relief granted to the assessee was sustained.

Ratio Decidendi: On removal or transfer of capital goods on which credit has been availed, the liability is confined to reversal of the credit benefit, not payment of duty at the rate applicable on the date of removal as if the goods were newly manufactured.

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