Modvat credit transfer on merger upheld where delegated approval existed, limitation failed, and withdrawn permission was unsustainable.

Unutilised Modvat credit was treated as transferable on clubbing of factory units because the credit account is factory-wise and merger of one unit into another brought the statutory merger condition into play. The transfer was not invalidated merely because the Superintendent recorded the permission with endorsement to the Assistant Commissioner, since the power had been delegated to the Assistant Commissioner and no disapproval was shown. A show cause notice issued within the applicable period was not time-barred. Withdrawal of permission was held unsustainable after the merged unit had ceased to exist and the transfer had already been acted upon, making restoration of the earlier position impracticable.

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Issues: (i) whether Rule 57F(20) and Rule 57S(5) were attracted to the transfer of unutilised Modvat credit when one unit was clubbed with another unit of the same manufacturer; (ii) whether the permission recorded by the Superintendent, with endorsement to the Assistant Commissioner, satisfied the requirement of permission by the competent authority; (iii) whether the show cause notice was barred by limitation; and (iv) whether withdrawal of the earlier permission could be sustained when the merged unit no longer existed.

Issue (i): whether Rule 57F(20) and Rule 57S(5) were attracted to the transfer of unutilised Modvat credit when one unit was clubbed with another unit of the same manufacturer.

Analysis: The provisions contemplate an application for transfer of unutilised credit where a factory is shifted, ownership changes, or the site changes on account of sale, merger, amalgamation, or transfer to a joint venture. The credit account is factory-wise, not merely manufacturer-wise. Once Unit No. II ceased to be a distinct and separate site by merger with Unit No. I, the statutory condition relating to change in the site of the factory resulting from merger was attracted.

Conclusion: The objection that the rules were inapplicable was rejected.

Issue (ii): whether the permission recorded by the Superintendent, with endorsement to the Assistant Commissioner, satisfied the requirement of permission by the competent authority.

Analysis: The power to permit transfer of unutilised credit had been delegated to the jurisdictional Assistant Commissioner. The Superintendent's letter expressly recorded the clubbing of units, permitted transfer of the balances, and was endorsed to the Assistant Commissioner with a statement that there was no loss of revenue. No material showed that the Assistant Commissioner had disapproved the action. The transfer therefore could not be treated as unauthorised.

Conclusion: The transfer was held to be supported by valid authority and no contravention was made out on this ground.

Issue (iii): whether the show cause notice was barred by limitation.

Analysis: The transfer of credit took place on 1-9-1997 and the notice was issued on 2-4-1998, which was within the period available under the relevant rule and within six months from the relevant date for purposes of demand.

Conclusion: The plea of limitation failed.

Issue (iv): whether withdrawal of the earlier permission could be sustained when the merged unit no longer existed.

Analysis: The permission had been acted upon and the units had been merged. In the circumstances, restoration of the transferred credit to the earlier account was not practicable, and the withdrawal of the permission could not be upheld. The situation attracted the principle that an induced and acted-upon representation should not be lightly withdrawn where status quo ante cannot be restored.

Conclusion: The withdrawal of permission was held unsustainable.

Final Conclusion: The duty demand and penalty were set aside, and the appeal succeeded.

Ratio Decidendi: Where unutilised Modvat credit is transferred pursuant to a merger or clubbing of factory sites with the concurrence of the delegated competent authority, the transfer cannot be denied merely because the initial permission was recorded by a subordinate officer, and once the permission has been acted upon, it cannot be withdrawn so as to revive the demand absent a sustainable legal basis.

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