Inter-unit stock transfer of capital goods without sale cannot trigger duty under Rule 3(5A) of the Cenvat Credit Rules

Duty could not be demanded under Rule 3(5A) of the Cenvat Credit Rules, 2004 on an inter-unit stock transfer of capital goods within the same legal entity, because the movement was not a sale and no transaction value existed. The transfer was supported by Form F and treated as a stock transfer between sister units rather than a trading transaction. In these circumstances, the proviso to Rule 3(5A), which depends on transaction value, was not available for invoking duty demand. The demand was therefore held unsustainable and consequential relief followed.

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Issues: Whether duty could be demanded under Rule 3(5A) of the Cenvat Credit Rules, 2004 on transfer of capital goods between two units of the same legal entity when the transfer was only an inter-unit stock transfer and no sale or transaction value existed.

Analysis: The demand rested on the premise that the proviso to Rule 3(5A) applied on transaction value. The transfer here was between units of the same company, was supported by Form F, and was not a sale in substance. The Tribunal followed its earlier view that a transfer between sister units does not amount to a trading transaction and, in the absence of sale, the basis for invoking the proviso to Rule 3(5A) was not available.

Conclusion: The demand raised by invoking Rule 3(5A) of the Cenvat Credit Rules, 2004 was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where capital goods are transferred only as stock transfer between units of the same legal entity and no sale or transaction value exists, the proviso to Rule 3(5A) of the Cenvat Credit Rules, 2004 cannot be invoked to demand duty on the transaction value.

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