Inter-unit transfer of capital goods for the same final product did not justify CENVAT credit denial or penalties.

Inter-unit transfer of capital goods between two units of the same assessee for manufacture of the same final product did not, on the stated reasoning, warrant denial or reversal of CENVAT credit under Rule 4(5)(a) of the CENVAT Credit Rules, 2002. The Tribunal treated the movement as a transfer within the assessee's own manufacturing set-up and distinguished cases involving use for an unrelated purpose. On the same factual basis, confiscation, fine, penalty and interest were not justified. The duty already paid was nevertheless sustained, and the assessee obtained only partial relief.

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Issues: (i) whether CENVAT credit taken on capital goods transferred from one unit to another unit of the same assessee for use in manufacture of the same final product was liable to be denied or reversed under Rule 4(5)(a) of the CENVAT Credit Rules, 2002; (ii) whether confiscation, fine, penalty and interest were sustainable on the facts of the case.

Issue (i): Whether CENVAT credit taken on capital goods transferred from one unit to another unit of the same assessee for use in manufacture of the same final product was liable to be denied or reversed under Rule 4(5)(a) of the CENVAT Credit Rules, 2002.

Analysis: The capital goods were moved between two units of the same assessee for use in production of the same final product. The transfer was treated as an inter-unit transfer and the reasoning adopted by the Tribunal distinguished the present facts from cases where goods were sent for an unrelated purpose. The interpretation of Rule 4(5)(a) and the surrounding case law supported the view that such movement of capital goods to another unit for manufacturing activity did not justify denial of credit in principle, although the assessee did not press refund of the duty already paid.

Conclusion: The denial of credit was not justified, but the duty demand already paid was upheld.

Issue (ii): Whether confiscation, fine, penalty and interest were sustainable on the facts of the case.

Analysis: The Tribunal found no basis for treating the movement of capital goods between the assessee's units as warranting confiscation. Since the transaction was held to be an inter-unit transfer for manufacture of the same product, the foundation for fine, penalty and interest did not survive on these facts. The provisions invoked for confiscation, penalty and interest were therefore not attracted in the manner applied by the lower authorities.

Conclusion: Confiscation, fine, penalty and interest were set aside.

Final Conclusion: The assessee obtained relief against confiscation, fine, penalty and interest, while the duty demand already paid was sustained, resulting in only partial success in appeal.

Ratio Decidendi: Inter-unit transfer of capital goods between units of the same assessee for manufacture of the same final product does not, by itself, justify denial of credit or imposition of confiscation, fine, penalty and interest.

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