Revenue-neutral stock transfers and absence of suppression justify retaining Cenvat credit and dropping penalty and interest.

Cenvat credit on goods transferred between units of the same assessee was treated as not disallowable where the transaction was revenue neutral and the differential duty was paid promptly after departmental detection. The record did not establish fraud, suppression of facts, or intent to evade duty, so the penal and interest consequences did not survive. On that basis, the restriction under Rule 7(1)(b) of the Cenvat Credit Rules, 2002 was considered inapplicable to the stock transfer situation, and the credit was retained while penalty and interest were set aside.

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Issues: Whether Cenvat credit taken on captively consumed goods transferred from one unit to another was invalid under Rule 7(1)(b) of the Cenvat Credit Rules, 2002, and whether penalty and interest were sustainable in the absence of fraud or suppression of facts.

Analysis: The goods were transferred between units of the same assessee and the differential duty was paid promptly after departmental detection. The dispute was treated as revenue neutral, and the record did not establish fraud, suppression of facts, or intention to evade duty. In such circumstances, the restriction under Rule 7(1)(b) was held inapplicable to the stock transfer situation, and the basis for penalty and interest did not survive.

Conclusion: The credit was not disallowed, and the penalty and interest were not sustainable; the assessee succeeded.

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