Specific transfer provisions govern when a factory division is sold as a going concern, defeating Modvat removal-based duty and penalties.

A factory division transferred as a going concern, with inputs, work-in-process, finished goods and capital goods taken over in the same premises, was held to fall under the specific transfer provisions on change in ownership rather than the general Modvat removal rules. Those provisions governing unutilised credit, inputs and capital goods displaced the broader duty demand based on removal, so the duty claim failed. On penalty and interest, the record showed departmental knowledge and verification of the transfer, with no mala fide intent or suppression; once the duty demand was unsustainable, the consequential penalty and interest also could not survive. The order was set aside in full.

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Issues: (i) Whether, on sale of a factory division, the removal of inputs and capital goods to the transferee amounted to removal attracting duty under the general Modvat provisions, or whether the specific provisions governing transfer on change in ownership applied; (ii) Whether penalty and interest were leviable on the appellants.

Issue (i): Whether, on sale of a factory division, the removal of inputs and capital goods to the transferee amounted to removal attracting duty under the general Modvat provisions, or whether the specific provisions governing transfer on change in ownership applied.

Analysis: The transfer arose from sale of the stabiliser bar division as a going concern with the stock of inputs, work-in-process, finished goods and capital goods remaining in the same premises and being taken over by the purchaser. Specific provisions under Rule 57F(20) and Rule 57F(21) provided for transfer of unutilised credit and inputs on change in ownership of a factory, and corresponding provisions under Rule 57S(5) and Rule 57S(6) governed capital goods and the credit thereon. In the presence of these specific provisions, the general provision regarding removal was held inapplicable.

Conclusion: The demand of duty was not sustainable and was set aside in favour of the appellants.

Issue (ii): Whether penalty and interest were leviable on the appellants.

Analysis: The transfer and re-registration were undertaken with the Department's knowledge and after verification, and the record did not justify an inference of mala fide intent or suppression warranting penal consequences. As the duty demand itself failed, the consequential levy of interest also could not stand.

Conclusion: The penalty and interest were not sustainable and were set aside in favour of the appellants.

Final Conclusion: The order under challenge was set aside in full and the appellants obtained relief on both duty and consequential penal liabilities.

Ratio Decidendi: Where a factory division is transferred on sale and the statute contains specific provisions for transfer of unutilised credit, inputs and capital goods on change in ownership, those specific provisions govern and the general removal-based duty provisions do not apply.

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