Modvat credit on capital goods moved between own units was upheld; disallowance and penalties were set aside.

Modvat credit on capital goods shifted between an assessee's own units was treated as properly availed where prior intimation was given to the department, the goods were moved within the assessee's units, and the credit was reversed on removal. The department's claim that the capital goods were never received in the factory was rejected for lack of verification or contrary evidence. The procedure was held consistent with the scheme governing credit on capital goods and removal before installation, and the earlier Tribunal view on intra-assessment-unit movement of capital goods was followed. The disallowance of credit was set aside, and the penalties imposed on both units were also vacated.

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Issues: Whether Modvat credit taken on capital goods transferred between the assessee's own units and reversed on subsequent removal was irregular, and whether the penalties imposed on both units were sustainable.

Analysis: The capital goods were imported after prior intimation to the department and were shifted between the assessee's own units. The record showed that credit was not treated as finally retained when the goods were moved, and the entire credit was reversed at the time of removal. The department's allegation that the capital goods were never received in the factory was not supported by verification or contrary evidence. The procedure adopted was held to be in conformity with the scheme governing capital goods credit and removal before installation, and the earlier Tribunal view on movement of capital goods between own units was followed.

Conclusion: The credit was held to be validly availed and reversed, the disallowance of credit was set aside, and the penalties on both units were also set aside in favour of the assessee.

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