Transfer of unutilised Modvat/Cenvat credit cannot be refused solely because inputs were not physically in stock.

Unutilised Modvat/Cenvat credit could not be refused merely because no physical stock of inputs was available for transfer. Under the governing credit-transfer scheme, the relevant inquiry was whether any inputs remained in stock and, if not, whether the capital goods on which credit had been taken were properly accounted for to the Commissioner's satisfaction. A cryptic refusal without hearing the assessee or passing a speaking order was inadequate. Where stock was nil, the transfer entry could reflect nil stock and the unutilised credit could still be transferred, subject to proper verification and recorded findings.

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Issues: Whether unutilised Modvat/Cenvat credit could be transferred when there was no stock of inputs to be physically transferred, and whether the Commissioner was required to pass a speaking order after hearing the assessee and recording satisfaction regarding the accounting of capital goods and inputs.

Analysis: The governing scheme under Rule 57F(20) and Rule 57F(21) of the Central Excise Rules, 1944, corresponding to Rule 8(1) and Rule 8(2) of the Cenvat Credit Rules, 2001, did not justify refusal of transfer merely on the footing that no inputs were available for transfer. The relevant inquiry was whether any stock of inputs existed and, if not, whether the capital goods on which credit had been taken were duly accounted for to the satisfaction of the Commissioner. The cryptic communication disclosed no application of mind, no hearing, and no speaking order, though such determination was necessary before rejecting the request. Where no stock existed, the transfer entry could reflect nil stock and transfer of the unutilised credit could not be denied on that ground alone.

Conclusion: The refusal to consider transfer of unutilised credit solely because there was no physical transfer of inputs was not sustainable, and the matter required fresh consideration after hearing the assessee and recording proper findings.

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