Revenue neutrality defeats duty demand and penalty on inter-unit transfer of capital goods for continued manufacture

Capital goods transferred from a closed unit to the assessee's new unit for continued use in manufacturing dutiable final products did not justify duty demand where the movement was an inter-unit transfer, not a sale. Because any duty paid on the transfer would have been available as credit at the receiving unit, the arrangement was revenue neutral and produced no real gain to the Revenue. On that basis, the duty demand was found futile and the penalty was also unsustainable.

---

---

Issues: Whether duty demand and penalty were sustainable when capital goods, on which credit had been taken, were transferred from a closed unit to the assessee's new unit for use in manufacture of dutiable final products, in the light of revenue neutrality.

Analysis: The capital goods had been received and used in the assessee's factory, and were later moved to the new unit for continued use in manufacture after the old unit was closed. The transfer was not a sale but an inter-unit transfer within the same assessee. Since any duty paid on the transfer would be available as credit at the receiving unit, the exercise did not result in any real revenue gain to the Revenue. On that basis, the demand was held to be futile and the penalty was also unsustainable.

Conclusion: The demand of duty and penalty were held to be not warranted, and the assessee succeeded.

---