Cenvat credit on capital goods returned late cannot be permanently denied if the goods are ultimately received back.

Capital goods moved between units of the same assessee under challan were covered by Rule 4(5)(a) of the Cenvat Credit Rules, 2004. Delay beyond 180 days did not, by itself, justify permanent denial of credit where the goods were ultimately received back; at most, reversal and interest for the delayed period could arise, subject to verification of actual receipt and payment from records. Penalties on the receiving unit and its director were unsustainable because the compliance obligation rested on the sender, not the transferee unit. The matter concerning the sending unit was remanded for fresh adjudication on factual verification.

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Issues: (i) Whether capital goods sent to another unit under challan under Rule 4(5)(a) of the Cenvat Credit Rules, 2004, and received back after 180 days, attracted denial of credit, and (ii) whether the penalties imposed on the receiving unit and the director were sustainable.

Issue (i): Whether capital goods sent to another unit under challan under Rule 4(5)(a) of the Cenvat Credit Rules, 2004, and received back after 180 days, attracted denial of credit.

Analysis: The movement of capital goods between the units of the same assessee was covered by the challan mechanism under Rule 4(5)(a). The rule requires return within 180 days, and if that period is exceeded, the credit is to be reversed initially, but recredit becomes available when the capital goods are subsequently received back. Delay by itself does not sustain a permanent demand where the goods are ultimately returned. The factual return of the capital goods and the payment of interest for the delayed period required verification from records before the adjudicating authority.

Conclusion: Denial of credit was not warranted merely because of delayed return, though the matter was remanded for verification of the actual receipt of goods and related interest payment.

Issue (ii): Whether the penalties imposed on the receiving unit and the director were sustainable.

Analysis: The obligation to comply with Rule 4(5)(a) rested on the sender of the capital goods. Since the movement was recorded through challan and the transaction was within the two units of the same company, there was no basis to fasten penalty on the receiving unit. For the same reason, the penalty on the director under Rule 26 was not justified.

Conclusion: The penalties on the receiving unit and the director were set aside.

Final Conclusion: The appeals relating to the receiving unit and the director succeeded, while the appeal of the sending unit was sent back for fresh adjudication on verification of the goods movement and interest payment.

Ratio Decidendi: Where capital goods are transferred between units under challan for job-work related purposes, delayed return beyond the stipulated period does not by itself justify a final denial of credit if the goods are subsequently received back; at most, reversal and interest may be required for the delay, and penalties cannot be imposed on persons not responsible for the statutory obligation.

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