Revenue neutrality and lack of proof of diversion defeated the penalty and duty demand.

The Tribunal's acceptance of revenue neutrality was upheld because the Revenue failed to establish diversion of inputs to third parties or any actual revenue loss. Although the units were associate concerns with common management and the record showed that materials moved inter se and were delivered to the concerned factories, the procedure followed did not meet prescribed formalities. That procedural lapse, however, did not displace the core factual finding that no cogent evidence of diversion existed. The Court held that the Tribunal's reliance on revenue neutrality was neither perverse nor legally flawed, and the penalty and duty demand could not be sustained.

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Issues: Whether the Tribunal was in accepting the assessee's plea of revenue neutrality and in holding that, in the absence of cogent evidence of diversion of inputs, the penalty and duty demand could not be sustained.

Analysis: The units were found to be associate concerns engaged in similar business with common management and a common head office. The factual record, including private books and transporter evidence, supported the finding that the raw materials were exchanged inter se and were delivered only to the concerned factories. The Court held that, although the procedure followed did not conform to the prescribed formalities, the Revenue had not established diversion to third parties or any actual revenue loss. In that situation, the Tribunal's reliance on the doctrine of revenue neutrality could not be termed perverse or legally flawed. The notional penalty for procedural infraction did not alter the core finding.

Conclusion: The Tribunal's view that the matter was revenue neutral and that the Revenue had failed to prove diversion of inputs was upheld; the appeals were dismissed.

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