Cenvat credit on transferred capital goods must be reversed and re-credited strictly under the rule, with penalty for non-disclosure.

Cenvat credit on capital goods under Rule 4(2)(a) of the Cenvat Credit Rules, 2002 was available only within the limits of the rule for the relevant financial year. Where credit had already been taken on capital goods at the original unit and one machine was later transferred to another unit, the credit had to be properly reversed and re-credited in accordance with the statutory scheme. Non-disclosure of the transfer, detected only during audit, supported invocation of the extended period and penalty. On these facts, the disputed credit was held inadmissible and the demand, interest, and penalty were sustained.

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Issues: Whether the assessee was entitled to retain the balance Cenvat credit on capital goods after transferring one of the machines to another unit, and whether demand, interest, and penalty were sustainable.

Analysis: Credit on capital goods under Rule 4(2)(a) of the Cenvat Credit Rules, 2002 was available only to the extent permitted by the rule in the relevant financial year. After availing credit on both machines at the original unit, the transfer of one machine to another unit required proper reversal and re-credit in accordance with the statutory scheme. The transfer was not disclosed to the department and came to light only during audit, which supported invocation of the extended period and the levy of penalty.

Conclusion: The assessee was not entitled to the disputed credit, and the demand, interest, and penalty were rightly sustained.

Final Conclusion: The appeal failed on merits and was dismissed, with the revenue's stand on inadmissibility of credit and consequential penalty being upheld.

Ratio Decidendi: Where capital goods are transferred from one unit to another after credit is taken, Cenvat credit must be claimed and adjusted strictly in accordance with the rule governing capital goods credit, and non-disclosure of the transfer may justify demand, interest, extended limitation, and penalty.

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