Modvat credit and duty on division transfer turned on actual removal, and mere sale of the division did not trigger duty.

Transfer of an entire division as a going concern, together with machinery, raw material, work-in-progress, consumables and finished goods, did not amount to "removal" for Modvat purposes where none of the inputs or capital goods were physically removed from the factory premises. The Tribunal applied the rule that the deeming provisions on removal operate only on actual removal from the factory and cannot be extended to a mere sale of the division with manufacture continuing in the same premises. On that basis, duty on the transferred goods and the consequential penalty were not sustainable.

---

---

Issues: Whether Modvat credit and duty liability could be denied on transfer of an entire division with its capital goods and inputs to another entity without physical removal from the factory.

Analysis: The transfer was of one division as a going concern, together with its machinery, raw material, work-in-progress, consumables and finished goods, and the admitted position was that none of the inputs or capital goods had been physically removed from the factory premises. The provisions relating to removal of inputs or capital goods apply only when there is actual removal from the factory, and the deeming provisions concerning removal could not be extended to a mere sale of the division with continued manufacture in the same premises. Following the prior decisions on the same principle, the Tribunal held that such a transaction did not attract duty on the transferred goods and no consequential penalty could be sustained.

Conclusion: The assessee was not liable to pay duty on the transferred inputs and capital goods, and penalty was not imposable.

Final Conclusion: The appeals succeeded, and the demand as well as the consequential penalty were set aside.

Ratio Decidendi: Sale of an entire division without physical removal of inputs or capital goods from the factory does not constitute removal for the purpose of excise duty under the applicable Modvat provisions.

---