Revenue-neutral inter-unit transfer of used capital goods justified reversal on depreciated value and defeated differential duty and penalty.

Inter-unit transfer of used capital goods within the same manufacturer was treated as revenue neutral because the receiving unit could immediately avail the corresponding Cenvat credit. The Tribunal accepted that, in these facts, reversal based on depreciated value was sufficient and that the amended position on removal of capital goods after use did not justify demanding the full original credit. Since the dispute related only to the quantum of reversal and depreciated value was a normal accounting basis, the differential duty demand and penalty were held unsustainable. The assessee was granted relief.

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Issues: Whether, on inter-unit transfer of capital goods within the same legal entity after use, the assessee was required to reverse the entire Cenvat credit originally taken or whether reversal based on depreciated value was sufficient, and consequently whether the demand and penalty were sustainable.

Analysis: The transfer was between two units of the same manufacturer, and the capital goods had already been used for the intended purpose. The decision relied on the principle that, in such an inter-unit transfer, the credit position in the receiving unit would be immediately available, making the transaction revenue neutral. The Tribunal also noted that the amended position relating to removal of capital goods after use did not justify fastening a demand in the facts of this case, and that the dispute was only about the quantum of reversal. In these circumstances, the adoption of depreciated value was treated as a normal accounting method and no justification was found for demanding the differential amount or imposing penalty.

Conclusion: The demand for differential duty and the penalty were not sustainable, and the assessee was entitled to relief.

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