Revenue-neutral transfer of capital goods between registered units cannot sustain a duty demand equal to CENVAT credit.

Transfer of capital goods from one separately registered manufacturing unit to another unit of the same assessee required reversal of the CENVAT credit taken by the transferring unit, while the recipient unit could avail the corresponding credit. On the stated facts, both units were engaged in manufacturing and entitled to credit on goods received by them, so the transfer created no net revenue loss. The resulting revenue-neutral position meant enforcement of a duty demand equal to the credit was not justified, and the demand was held unsustainable.

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Issues: Whether duty demand equivalent to CENVAT credit was sustainable when capital goods were transferred from one registered manufacturing unit to another unit of the same assessee and the situation was revenue neutral.

Analysis: Each unit was engaged in manufacturing activity, separately registered, and entitled to avail CENVAT credit on inputs and capital goods received by it. Where one unit clears capital goods as such to another unit, the credit taken on those capital goods is required to be reversed, while the recipient unit can avail the corresponding credit. On the facts, the transfer between the units did not create any net revenue loss, and the overall position remained revenue neutral. In such a situation, enforcement of the duty demand was not justified.

Conclusion: The duty demand was unsustainable and the appeal was allowed in favour of the assessee.

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