Transfer of entire factory with stock and assets permits Modvat credit continuity without reversal on ownership change.

Transfer of an entire factory, together with stock, inputs, capital goods, machinery and related assets, was treated as a change of ownership rather than a removal of goods from the factory. On those facts, the Modvat credit already availed on inputs and capital goods was not required to be reversed, because the governing rules permitted transfer of unutilised credit where the stock of inputs in hand or in process was also transferred with the unit. The reasoning treated the provisions for capital goods as pari materia with those for inputs, and the cited precedent supporting transfer of credit on sale of the whole undertaking was applied.

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Issues: Whether, on sale of the entire factory along with inputs and capital goods to a new owner, the assessee was required to reverse the Modvat credit availed on such inputs and capital goods, or whether the transfer was permissible without treating it as a removal attracting reversal of credit.

Analysis: The factory, land, machinery and other assets were transferred to the purchaser along with the stock and other materials, so the credit-availed inputs and capital goods came into the possession of the new owner on transfer of ownership. On these facts, there was no removal of the goods from the factory so as to attract the provisions dealing with removal. The relevant rules permitted transfer of unutilized credit on change of ownership, provided the stock of inputs in hand or in process was also transferred with the factory. The provisions governing capital goods were treated as pari materia with those relating to inputs. The materials on record showed that the transfer was of the entire factory with assets and liabilities, and the cited precedent supporting the assessee squarely applied.

Conclusion: The assessee was not liable to repay the credit availed on the inputs and capital goods transferred along with the factory, and the Revenue's challenge failed.

Ratio Decidendi: Where an entire factory is transferred along with the relevant stock and assets to a new owner, the transaction is not a removal of inputs or capital goods from the factory for excise-credit reversal purposes, and the unutilized credit may be transferred in accordance with the governing rules.

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