Cenvat credit on inter-unit stock transfers held admissible; revenue neutrality and no intent to evade defeated penalty.

Cenvat credit on duty paid for captively consumed goods transferred between units was treated as admissible, because Rule 7(1)(b) of the Cenvat Credit Rules, 2002 was held inapplicable to such stock transfers even where additional duty arose from undervaluation. The later payment of duty, made promptly after departmental detection and before the show cause notice, supported the view that the matter was revenue neutral and no intention to evade duty was shown. On that basis, the penalty did not survive and was set aside, with consequential relief.

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Issues: Whether Cenvat credit was inadmissible on duty paid for captively consumed goods transferred between the appellant's units, and whether penalty and interest were sustainable.

Analysis: The goods were transferred from one unit to another and the additional duty was paid promptly after departmental detection, before issuance of the show cause notice. The disallowance under Rule 7(1)(b) of the Cenvat Credit Rules, 2002 was held inapplicable to such stock transfers, even where extra duty became payable on account of undervaluation. The matter was treated as revenue neutral and no intention to evade duty was found. In these circumstances, the basis for penalty did not survive.

Conclusion: The credit was held admissible and the penalty was set aside, with consequential relief.

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