Cenvat credit cannot be denied merely because factory premises are sold if manufacturing continues through job work and duty is paid.

Sale of factory premises by itself does not disentitle an assessee to Cenvat credit where manufacturing continues through another unit on job-work basis and the credit is used to pay duty on final products. The relevant facts were movement of inputs to the Bhiwadi unit, return of finished goods, and filing of ER-1 returns showing regular duty payment. On that record, denial of credit merely because the original premises had been sold was not justified, absent any dispute about the duty-paid nature of inputs or the duty payment on clearances. As the basis for disallowance failed, penalties also could not be sustained.

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Issues: Whether Cenvat credit on inputs could be denied merely because the factory premises had been sold, when the assessee continued manufacturing activity through another unit on job-work basis and used the credit for payment of duty on final products, and whether penalties were sustainable.

Analysis: The sale of factory premises by itself did not establish cessation of manufacturing activity. The record showed movement of inputs to the assessee's Bhiwadi unit, manufacture of goods on job-work basis, return of finished goods, and regular filing of ER-1 returns showing duty payment on final products. The credit availed on inputs was used towards discharge of duty on goods actually manufactured and cleared on payment of duty. In such circumstances, denial of credit solely on the basis of sale of premises, without dispute as to duty-paid nature of inputs or payment of duty on final products, was not justified. Since the foundation for denial of credit failed, the penalties also could not survive.

Conclusion: Cenvat credit could not be denied and the penalties were unsustainable.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Sale of factory premises alone does not disentitle an assessee to Cenvat credit where the evidence shows continued manufacturing through job work and lawful utilization of credit for payment of duty on final products.

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