Finality of credit-transfer order bars penal action for Modvat credit transfer under the same excise order

An unchallenged order permitting transfer of unutilised Modvat credit under Rule 57AF(1) and (2) attained finality, so the department could not later impose a contrary condition that such transfer was valid only if inputs or goods were also transferred. The petitioners' transfer and availment of credit was held to be in accordance with the subsisting order, and no contravention justifying penal action was made out. The show cause notice proposing penalty was therefore quashed in favour of the assessees.

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Issues: Whether the petitioners were liable to penal action for transferring and availing unutilised Modvat credit from one unit to another after an order permitting such transfer had become final.

Analysis: The unutilised credit had been permitted to be transferred by an order of the Deputy Commissioner under Rule 57AF(1) and (2) of the Central Excise Rules, 1944. That order was not challenged by the department and had attained finality. The permission could not be read as being subject to a further condition that credit transfer was impermissible unless inputs or goods were also transferred. In the circumstances, the petitioners' transfer and availment of credit was in accordance with the subsisting order, and no contravention warranting penal proceedings could be made out.

Conclusion: The show cause notice proposing penal action was unsustainable and was quashed; the issue was decided in favour of the assessees.

Ratio Decidendi: Where an unchallenged order expressly permits transfer of unutilised credit under the applicable excise rules, the department cannot later initiate penal proceedings on a contrary construction of the same order.

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