Change in shareholding does not transfer factory ownership under Cenvat Credit Rule 8; shortage-based demand upheld separately.

Alleged shortage of cenvated inputs was treated as established because the stock verification was conducted in the presence of the assessee's representative and the later explanation was inconsistent with the contemporaneous record; the credit demand relating to that shortage was upheld. Rule 8 of the Cenvat Credit Rules, 2002 was held inapplicable where only the company's shareholding and management changed, because the factory's ownership did not transfer in any of the modes specified in the rule; the demand based on denial of unutilised Cenvat credit was therefore unsustainable. The balance demand was set aside and the penalty reduced accordingly.

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Issues: (i) Whether the alleged shortage of cenvated inputs was established and the corresponding credit demand was sustainable; (ii) Whether Rule 8 of the Cenvat Credit Rules, 2002 applied where only the shareholding and management of the company changed, and whether the unutilised Cenvat credit balance could be denied on that basis.

Issue (i): Whether the alleged shortage of cenvated inputs was established and the corresponding credit demand was sustainable.

Analysis: The stock verification was carried out in the presence of the appellant's representative, who did not then dispute the method of verification or explain the discrepancy by reference to stock allegedly lying in the manufacturing area. The explanation advanced later was inconsistent with the contemporaneous record and was not accepted.

Conclusion: The shortage of inputs was established and the demand of Rs. 84,201.85 was rightly upheld.

Issue (ii): Whether Rule 8 of the Cenvat Credit Rules, 2002 applied where only the shareholding and management of the company changed, and whether the unutilised Cenvat credit balance could be denied on that basis.

Analysis: Rule 8 applies where the factory is shifted or transferred on account of change in ownership, sale, merger, amalgamation, lease, or transfer to a joint venture with transfer of liabilities. The owner of the factory remained the company, and only the shareholders and directors changed. A change in control of the company did not amount to transfer of the factory's ownership within Rule 8.

Conclusion: Rule 8 was inapplicable and the demand of Rs. 4,37,697.36 was not sustainable.

Final Conclusion: The credit demand was sustained only to the extent of the established shortage, while the balance demand was set aside and the penalty was correspondingly reduced.

Ratio Decidendi: A change in shareholding or management of a company does not by itself amount to transfer of ownership of the factory for the purpose of Rule 8 of the Cenvat Credit Rules, 2002; that rule is attracted only when the factory itself is transferred in one of the modes specified therein.

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