Modvat capital goods shifting within factory precincts does not attract violation or mandatory penalty absent evasion or wilful breach.

Mere shifting of Modvat-availed capital goods to an adjacent premises within the factory precincts, due to space constraints, was treated as outside the mischief of Rule 57-S(1)(ii) because the provision contemplated a qualified removal linked with export or home consumption. On the facts described, the credit had already been reversed and there was no finding of fraud, wilful contravention, or intent to evade duty, so the basis for mandatory penalty under Rule 57-U(6) was absent. The document states that the alleged violation was not established and the penalty was not sustainable, resulting in relief to the assessee.

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Issues: Whether shifting capital goods on which Modvat credit had been taken to an adjacent premises outside the factory boundary amounted to a violation of Rule 57-S(1)(ii), and whether mandatory penalty under Rule 57-U(6) was sustainable.

Analysis: Rule 57-S(1)(ii) was held to contemplate a qualified removal connected with export or home consumption. A mere shifting of machinery to an adjacent premises, or to precincts appertaining thereto, owing to space constraints, did not attract the mischief of the rule. Since the credit had already been reversed and no finding of fraud, wilful contravention, or intent to evade duty was recorded, the basis for mandatory penalty was absent.

Conclusion: The alleged violation of Rule 57-S(1)(ii) was not established, and the penalty under Rule 57-U(6) was not sustainable; the decision was in favour of the assessee.

Final Conclusion: The penalty imposed on the assessee was set aside and the appeal succeeded.

Ratio Decidendi: Mere shifting of duty-paid capital goods to an adjacent premises within the precincts of the factory, without any element of evasion or wilful breach, does not constitute a violation warranting mandatory penalty.

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