Change in ownership without physical removal does not trigger excise duty recovery or Cenvat credit reversal on stock in factory

Mere transfer of a factory unit to a separate entity, without physical removal of capital goods, inputs, or finished goods from the premises, did not amount to removal for Cenvat credit purposes, so reversal of credit was not required. The same reasoning applied to duty recovery under the Central Excise Act: change in ownership or possession alone did not justify immediate duty demand on stock lying in the factory when the goods remained in situ and were cleared later on payment of duty. The demand on that basis was therefore unsustainable.

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Issues: (i) Whether Cenvat credit was required to be reversed on capital goods, inputs, and finished goods lying in stock when the spun yarn business was transferred without physical shifting of the goods. (ii) Whether duty demand under Section 11A of the Central Excise Act, 1944 could be sustained on finished goods lying in the factory at the time of transfer of business and change of ownership.

Issue (i): Whether Cenvat credit was required to be reversed on capital goods, inputs, and finished goods lying in stock when the spun yarn business was transferred without physical shifting of the goods.

Analysis: The transfer of the business portion was effected by segregation of the factory premises and transfer of the concerned unit to a separate entity with independent registration, but the capital goods, inputs, and finished goods remained in the same premises and were not physically removed. The transfer was treated as a transfer in law rather than a removal of goods from the factory. On that footing, the condition for reversal under the Cenvat credit provisions was not attracted.

Conclusion: The requirement to reverse Cenvat credit was not attracted and the demand on that account failed.

Issue (ii): Whether duty demand under Section 11A of the Central Excise Act, 1944 could be sustained on finished goods lying in the factory at the time of transfer of business and change of ownership.

Analysis: Duty under the central excise regime is linked to manufacture, but its recovery is ordinarily connected to removal. Mere change in ownership or possession, without physical shifting or removal of the excisable goods, does not amount to removal so as to justify immediate duty recovery on goods lying in stock. Since the goods remained in the premises and the transferee entity cleared the goods on payment of duty thereafter, the demand on the stock lying at the time of transfer was unsustainable.

Conclusion: The duty demand under Section 11A was unsustainable and had to be set aside.

Final Conclusion: The transfer of the business without physical removal of the goods did not trigger a duty or credit reversal liability on the stock remaining in the factory, and the impugned order could not be sustained.

Ratio Decidendi: In central excise, mere change of ownership or transfer of a factory unit without physical removal of the goods does not constitute removal for the purpose of duty recovery or reversal of credit.

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