Physical removal is required for deemed removal of capital goods; transfer of a running unit did not trigger excise duty or credit reversal.

Sale of a running power unit with its plant and machinery, transferred together with assets and liabilities, did not amount to removal of capital goods from the factory for excise purposes. The Tribunal treated physical removal as the decisive factor and held that a mere amendment of the approved ground plan could not, by itself, establish deemed removal. As the unit was transferred as an ongoing business division and not physically taken out of the factory, duty demand, reversal of credit, and penalty were unsustainable under the Modvat framework.

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Issues: Whether sale of the power unit with its plant and machinery amounted to removal of capital goods from the factory so as to attract duty demand and reversal of credit under the Central Excise Rules.

Analysis: The demand was founded on the premise that the capital goods were deemed to have been removed on sale and, therefore, duty was recoverable under the relevant excise provisions. The decisive consideration was that the entire power plant was transferred to the purchaser with assets and liabilities, and the capital goods were not physically removed from the factory. Mere subsequent amendment of the approved ground plan could not by itself establish removal for duty purposes. The Tribunal also noted that the facts were covered by the earlier decisions relied upon, where transfer of a unit or division with plant and machinery was held not to amount to removal attracting such demand.

Conclusion: The sale of the power unit did not constitute removal of capital goods from the factory for the purpose of duty demand, and the demand and penalty were unsustainable.

Ratio Decidendi: Transfer of a running unit or division with its capital goods, without physical removal from the factory, does not by itself amount to deemed removal so as to attract excise duty or reversal of credit under the Modvat scheme.

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