Revenue neutrality in inter-unit transfers makes duty demand unsustainable where Modvat credit is fully available to the recipient unit.

Clearances to the assessee's own unit were treated as revenue neutral because the duty paid on the transfers was available as Modvat credit to the receiving unit, which could utilise it. On those facts, no net revenue gain would arise and no real prejudice would result from the valuation adopted, so the duty demand was considered futile and unsustainable. The document concerns the revenue-neutrality principle in inter-unit transfers and its effect on the sustainability of duty demand.

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Issues: Whether the demand of duty was unsustainable on the ground that the clearances to the assessee's own unit gave rise to a revenue-neutral situation, with the duty paid being available as Modvat credit to the recipient unit.

Analysis: The goods were transferred only to the assessee's own unit and were not sold in the open market. The duty paid on the clearances was available as Modvat credit to the other unit, which was in a position to utilise it. On these facts, no net gain would accrue to the Revenue and no real prejudice would be caused to the assessee by the valuation adopted, making the demand futile.

Conclusion: The demand was held unwarranted and unsustainable on the ground of revenue neutrality, and the appeal was allowed with consequential relief.

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