Modvat credit transfer on factory shift allowed where statutory conditions were met; no direct link to physical inputs was required.

Unutilised Modvat credit could be transferred when a manufacturer shifted its factory to another site, provided the transferred stock of inputs as such or in process was duly accounted for and the statutory conditions under the applicable rules were satisfied. The rules did not require a direct one-to-one correlation between the credit balance in RG 23A and the exact physical quantum of inputs moved, so a restriction tying transfer of credit to the quantity of inputs transferred was unsustainable. The order limiting the transfer was therefore set aside, and the credit transfer was allowed.

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Issues: (i) Whether unutilised Modvat credit could be transferred on shifting of the factory to another site under Rule 57F(20) and Rule 57F(21) of the Central Excise Rules, 1944. (ii) Whether such transfer could be restricted by linking the amount of credit to the physical quantum of inputs transferred.

Issue (i): Whether unutilised Modvat credit could be transferred on shifting of the factory to another site under Rule 57F(20) and Rule 57F(21) of the Central Excise Rules, 1944.

Analysis: The rules permit transfer of unutilised credit when a manufacturer shifts a factory to another site, provided the stock of inputs as such or in process is also transferred and the inputs on which credit was taken are duly accounted for. The cited precedent under a different sub-rule was held inapplicable, and the authority treated the relevant rule as governing transfer of the credit account on factory shifting.

Conclusion: The transfer of unutilised Modvat credit was permissible, subject to the statutory conditions.

Issue (ii): Whether such transfer could be restricted by linking the amount of credit to the physical quantum of inputs transferred.

Analysis: The rules require transfer of stock of inputs as such or in process along with the factory, but they do not create a direct correlation between the amount of credit in RG 23A and the exact physical quantity of inputs moved. Therefore, a restriction limiting the credit transfer by the physical quantum of inputs could not be sustained.

Conclusion: The restriction on transfer of credit based on the physical quantum of inputs was not justified.

Final Conclusion: The assessee was entitled to transfer the unutilised credit on shifting of the factory, and the order restricting such transfer was set aside.

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