Removal of capital goods after partial credit triggered duty, while penalty was dropped for bona fide reversal.

Where capital goods on which only 50% credit had been taken were removed to a sister unit before the balance credit could be availed, the condition for taking the remaining credit was not satisfied and duty on removal as such became payable. The duty demand and interest were therefore sustained. On penalty, the Tribunal accepted that the assessee had reversed credit and acted under a bona fide belief as to the extent of reversal required, so penal action was not justified. The penalty was set aside, leaving the substantive duty liability intact.

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Issues: (i) Whether duty was payable when capital goods, on which 50% credit had been taken, were removed to a sister unit before the balance credit could be availed. (ii) Whether penalty was sustainable in the facts of the case.

Issue (i): Whether duty was payable when capital goods, on which 50% credit had been taken, were removed to a sister unit before the balance credit could be availed.

Analysis: Credit on capital goods was available only to the extent of 50% in the first financial year, and the balance credit could be taken later only if the capital goods remained in the possession and use of the manufacturer. Since the capital goods were removed as such to a sister unit after availing the first 50% credit, the condition for availing the remaining credit was not satisfied. In such circumstances, the liability under the rule requiring payment of duty on removal of capital goods as such was attracted.

Conclusion: The duty demand, along with interest, was upheld against the assessee.

Issue (ii): Whether penalty was sustainable in the facts of the case.

Analysis: The assessee had reversed the credit taken and claimed bona fide belief regarding the extent of reversal required. On the facts and circumstances, the Tribunal found no warrant for penal action.

Conclusion: The penalty was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of deletion of penalty, while the duty demand with interest was sustained.

Ratio Decidendi: Where capital goods are removed after availing only part of the admissible credit and the statutory condition for the balance credit is not met, duty liability on such removal is attracted, though penalty may be declined if the circumstances do not justify it.

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