Input credit on factory transfer by lease remains available where goods stay in use for manufacture.

Credit on inputs and capital goods lying in a factory is not recoverable merely because the undertaking is transferred on lease, where the goods remain in the factory and continue to be used in or in relation to manufacture of final products. The Tribunal treated the same principle as applicable to transfer of the factory on lease or sale, and rejected recovery of the credit together with consequential demand, interest and penalty on that basis.

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Issues: Whether credit availed on inputs and capital goods lying in the factory was recoverable when the factory was transferred on lease and whether the demand, interest and penalty could be sustained.

Analysis: The Tribunal noted that the credit in dispute related to inputs and capital goods available in the factory at the time of transfer of the undertaking. Relying on earlier Tribunal decisions, it held that such credit is not recoverable so long as the goods are not removed from the factory and are used in or in relation to manufacture of final products. The same principle was held to apply where the factory is transferred on lease. On that basis, the impugned demand was held unsustainable.

Conclusion: The issue was decided in favour of the assessee. The demand, interest and penalty were set aside.

Ratio Decidendi: Credit availed on inputs and capital goods lying in a factory is not recoverable merely because the factory is transferred on lease or sale, if the goods are not removed and remain relatable to manufacture of final products.

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