Captive power plant restructuring does not trigger credit reversal when assets remain integrally used for manufacturing.

Transfer of a captive power plant to a subsidiary, undertaken as business restructuring and by assignment rather than true sale, did not require reversal of capital goods credit. The rotor continued to function as part of an integrated captive arrangement supplying the steel mill, so its use remained linked to the manufacturing unit. Capital goods credit also could not be denied merely because the rotor was situated outside the mill premises after restructuring. On that basis, the duty demand, confiscation and penalty were unsustainable and consequential relief followed.

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Issues: (i) whether the transfer of the captive power plant to a subsidiary amounted to a sale of the rotor so as to trigger reversal of capital goods credit; (ii) whether capital goods credit was unavailable merely because the rotor was situated outside the steel mill premises after restructuring.

Issue (i): whether the transfer of the captive power plant to a subsidiary amounted to a sale of the rotor so as to trigger reversal of capital goods credit.

Analysis: The transfer deed showed a business restructuring exercise intended to strengthen the parent company's core activity. The transfer was by assignment and not an alienation of assets by sale. The plant continued to be used as a dedicated power source for the steel mill, and the factual position was treated as materially similar to the principle applied in the captive power plant context where the corporate form may be disregarded to ascertain the real nature of the arrangement.

Conclusion: The transfer was not a sale of the rotor, and reversal of credit on that basis was not justified.

Issue (ii): whether capital goods credit was unavailable merely because the rotor was situated outside the steel mill premises after restructuring.

Analysis: Credit on capital goods depends on their use in the factory of the manufacturer, but the expression is not to be read so narrowly as to deny credit where the goods remain part of an integrated captive arrangement serving the manufacturing unit. Mere location outside the factory premises does not by itself defeat eligibility when the capital goods continue to serve the manufacturing process in a captive setup.

Conclusion: Capital goods credit could not be denied merely because the rotor was located outside the steel mill premises.

Final Conclusion: The duty demand, confiscation, and penalty could not be sustained, and the appellants were entitled to consequential relief.

Ratio Decidendi: In a captive, integrated manufacturing arrangement, a transfer by way of business restructuring that does not amount to a true sale does not require reversal of capital goods credit, and mere physical placement of the capital goods outside the factory premises is not ative if their use remains integrally connected with the manufacturing unit.

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