Transfer of unutilized Cenvat credit on factory relocation allowed when inputs and capital goods are properly accounted for.

On shifting a factory to a new site, unutilized Cenvat credit may be transferred to the new unit if the inputs or capital goods are moved and duly accounted for to the Commissioner's satisfaction. Rule 8 of the Cenvat Credit Rules, 2002 was read as permitting such transfer without confining it to the exact credit relatable only to the physical stock transferred. As the materials and credit balance were satisfactorily accounted for, the demand treating the transfer as excessive could not stand, and the impugned order was set aside.

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Issues: Whether, on shifting of a factory to a new site, the assessee could transfer the unutilized Cenvat credit to the new unit even though the credit transferred exceeded the credit corresponding to the physical stock of inputs, where the inputs and capital goods were transferred and duly accounted for.

Analysis: Rule 8(1) of the Cenvat Credit Rules, 2002 permits transfer of unutilized Cenvat credit when a factory is shifted to another site. Rule 8(2) requires that the stock of inputs or capital goods also be transferred and accounted for to the satisfaction of the Commissioner. The rule does not limit transfer of credit to the exact quantum relatable only to the stock of inputs transferred. Since the materials and credit balance were satisfactorily accounted for, the demand based on the alleged excess transfer of credit could not stand.

Conclusion: The demand was unsustainable and the assessee was entitled to transfer the credit to the new factory; the issue is decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: On shifting of a factory, unutilized Cenvat credit may be transferred to the new site so long as the transferred inputs or capital goods are duly accounted for, and the transfer is not confined to the exact credit relatable only to the physical stock moved.

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