Customs, Excise and Gold Tribunal - Bangalore
Hewlett Packard (India) Sales (P) Ltd. vs The Commissioner Of Customs on 14 November, 2006
Equivalent citations: 2007[6]S.T.R.155, [2007]14STT10
ORDER T.K. Jayaraman, Member (T)
1. This appeal as been filed against the OIA No. 107/2006-Cus(B) dated 10.08.2006 passed by the Commissioner of Customs (Appeals), Bangalore.
2. The brief facts of the case are as follows:
The appellants, M/s. Hewlett Packard India Sales (P) Ltd., Bangalore, are EHTP Unit functioning under 100% EOU Scheme manufacturing Personal Computers. Another unit in Pondicherry, existed in the name of Hewlett Packard India (Pvt.) Ltd., for manufacture of Computers and Printers (Pondicherry unit for short). The Pondicherry unit availed input credits for the manufacture of Computers and Printers. There was amalgamation of the Pondicherry unit with the appellant unit vide the order dated 28.05.2004 of the High Court of Karnataka. The Pondicherry unit stopped production w.e.f October 2004 onwards and transferred the unutilized credit to the Bangalore Unit. On the direction of the Department, the credit taken was reversed. Thereafter, the appellants submitted a letter dated 28.12.2005 to the Pondicherry authorities and requested permission to transfer the available CENVAT credit balance of Rs. 15,85,47,475/- to their Bangalore factory. A letter dated 10.03.2006 was also submitted to the jurisdictional Assistant Commissioner of Customs, Bangalore informing that they would transfer the unutilized balance on CENVAT credit from Pondicherry unit to the EHTP unit at Bangalore. The Deputy Commissioner of Customs, Bangalore, directed the appellants not to transfer the balance of CENVAT credit in view of the fact that there was neither shifting of the factory nor there was any transfer of inputs/raw materials or finished goods. Moreover, the Pondicherry Excise authorities had not permitted such a transfer. The decision of the Revenue was contained in letters dated 15.3.2006, 11.5.2006 and 22.05.2006. The appellants appealed to the Commissioner (Appeals) for setting aside the orders contained in the above letters. The Commissioner (Appeals) had passed a very detailed order interpreting Rule 10 of CENVAT Credit Rules. In the opinion of the Commissioner (Appeals), permission was required in order to transfer the credit. He has also given a finding that the appellants have not fulfilled any of the conditions laid under Rule 10 of CENVAT Credit Rules, 2004 and, therefore, they are not entitled for transfer of credit. Quoting Rule 9(2) of CENVAT Credit Rules, he has held that in the event of manufacturer opting for exemption (based on value or quantity), the accumulated credit would lapse and would not be allowed to be utilized for payment of duty on any excisable goods. He has recorded that the final products manufactured by the Pondicherry unit were already exempted w.e.f. 09.07.2004. With the above observations, he has remanded the matter to the lower authority to issue a speaking order. The appellants are highly aggrieved over the impugned order of the Commissioner (Appeals). Hence, they have come before this Tribunal for relief.
3. Shri G. Shiva Dass, the learned Advocate, appeared for the appellants and Shri Anil Kumar, the learned JDR, for the Revenue.
4. The learned Advocate urged the following points:
(i) At the outset, the learned Advocate narrated the events leading to the passing of the impugned order and said that though the impugned order is a remand order, the Commissioner (Appeals) has already decided the issues and the lower authority, in the de novo order, would only abide by the decisions of the Commissioner (Appeals). Therefore, they have come before the Tribunal to set aside the impugned order.
(ii) One of the reasons for holding that the appellants are not entitled to transfer the unutilized credit is that they had not taken the permission from the jurisdictional authorities. It was urged that the Rules do not contemplate such permission. Further, there are decisions of the Tribunal, which hold that for transfer, there is no need for any permission from the departmental authorities.
(iii) The Commissioner (Appeals) has not properly appreciated the factual position in this case. The Pondicherry unit, due to business reasons, ceased to function and by the High Court's order dated 28.05.2004, the amalgamation of the Pondicherry unit with the appellant unit has been approved. The Pondicherry unit surrendered the original Registration Certificate on 26.8.2004. At that time, they requested for endorsement in the name of Hewlett Packard India Sales (P) Ltd. On receipt of the Registration Certificate endorsed in the name of Hewlett Packard India Sales (P) Ltd., the appellant in their letter dated 14.9.2004 requested the Assistant Commissioner, Pondicherry inter alia, to permit the transfer of Cenvat credit to them. On 28.12.2005, the appellants informed the Assistant Commissioner, Pondicherry, their proposal to transfer cenvat credit of Rs. 15,85,47,475/- to their Bangalore factory and also intimated the reversal of Rs. 3,45,128/- made in the month of February 2005 on account of raw materials and finished goods lying as on 09.07.2004. On 10.03.2006, they informed the Assistant Commissioner of Central Excise, Bangalore that they would transfer the unutilized balance of cenvat credit from Pondicherry. On 17.5.2006, they surrendered the Registration Certificate of Pondicherry unit consequent to closure of Pondicherry unit and shifting of manufacturing activity to Bangalore. On 15.3.2006, the Deputy Commissioner, Bangalore, directed the appellants not to transfer the balance of Cenvat credit. An appeal was filed before the Commissioner (Appeals). On 19.4.2006, they replied to the letter dated 15.03.2006 that the transfer of credit was permitted in terms of Rule 10 of the Cenvat Credit Rules. On 11.5.2006, the Superintendent rejects the appellant's request for transferring the credit. An appeal was filed against the letter dated 11.5.2006 of the Superintendent of Customs, Bangalore. On 22.5.2006, the Department again directed the appellants not to transfer the balance of credit. A third appeal was filed against the letter dated 22.5.2006 of the Superintendent. The Commissioner (Appeals) passed the impugned order and upheld the decision of the lower authorities. The learned Advocate urged that the appellants are legally entitled to transfer the untilised credit in terms of Rule 10 of the CENVAT Credit Rules 2004 and no permission is required.
5. The learned SDR reiterated the impugned order-in-appeal.
6. We have gone through the records of the case carefully. In this appeal, the following questions of facts and law are to be decided.
The question of facts:
(a) Was there an amalgamation of the Pondicherry unit with the appellant's unit at Bangalore?
(b) Was there unutilized Cenvat credit in the account of the Pondicherry unit?
The questions of law:
(a) Whether the transfer of unutilized credit is permissible under CENVAT Credit Rules, 2004?
(b) Whether the Cenvat credit in the account of Pondicherry unit lapsed when their product became non-dutiable?
(c) Whether prior permission for transfer of credit is necessary in terms of the CENVAT Credit Rules, 2004?
(d) In the absence of transfer of inputs as such or in process materials to the Bangalore unit whether condition of Rule 10(3) has not been satisfied?
6.1. Let us examine the above issues.
Question of facts:
(a) The Hon'ble High Court of Karnataka in the Company Petition No. 216/2003 has issued an Order dated 28th May, 2004 sanctioning the Scheme of Amalgamation of M/s. Hewlett Packard (India) Private Limited and M/s. Hewlett Packard India Sales Private Limited subject to certain conditions. The conditions and the actual Scheme are not very relevant for us now. The fact of amalgamation is on record. This fact has not been disputed.
(b) After the order of the Karnataka High Court, the appellants informed the fact of amalgamation to the jurisdictional authorities. The Registration Certificate of the Pondicherry unit was also surrendered. It is seen from the ER1 return as on November, 2005 that the Pondicherry Unit had a balance of Cenvat credit of Rs. 15,85,47,475/- lying unutilized. Even immediately after the amalgamation order, the appellants had informed the jurisdictional authorities their intention to transfer the unutilized credit to Bangalore unit in terms of Rule 10 of Cenvat Credit Rules, 2004.
Question of law:
(a) Coming to the questions of law, the relevant rule is Rule 10 of CENVAT Credit Rules, 2004. The Rule is reproduced below:
Rule 10. Transfer of CENVA T credit -
(1) If a manufacturer of the final products shifts his factory to another site or the factory is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory to a joint venture with the specific provision for transfer of liabilities of such factory, then, the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated factory.
(2) If a provider of output service shifts or transfers his business on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the business to a joint venture with the specific provision for transfer of liabilities of such business, then, the provider of output service shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated business.
(3) The transfer of the CENVAT credit under Sub-rules (1) and (2) shall be allowed only if the stock of inputs as such or in process, or the capital goods is also transferred along with the factory or business premises to the new site or ownership and the inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise or, as the case may be, the Assistant Commissioner of Central Excise.
The relevant provision is actually Rule 10(1).
This Rule provides transfer of Cenvat credit lying unutilized in the event of shifting of a factory to another factory on account of amalgamation. It is also on record that all the production activities in the Pondicherry unit stopped after the amalgamation. The appellants, in their letter dated 17.05.2006, had informed the Deputy Commissioner, Pondicherry that their manufacturing activity is shifted to their unit at Bangalore, consequent to the merger. Further, they have stated that they had reversed the duty on the stock of raw materials and finished goods lying as on 09.07.2004. They had also requested the Deputy Commissioner to confirm the balance of credit in the Cenvat account to enable them to use the same at Bangalore unit. It is not the case of the authorities at Pondicherry that the appellants do not have any Cenvat credit balance unutilized. Hence, the appellants are legally entitled for the transfer under Rule 10(1) of the Cenvat Credit Rules, 2004.
(b) The Commissioner (Appeals), in para 8 of the impugned order, holds that the accumulated credit would lapse in view of the fact that the final product was already exempted when the new registration was issued on 08.09.2004. He has also referred to Rule 9(2) which provided that in the event of manufacturer opting for exemption (based on value or quantity), the accumulated credit would lapse and would not be allowed to be utilized for payment of duty on any excisable goods. We are afraid that the above conclusion of the Commissioner (Appeals) is not correct.
Rule 11 of Cenvat Credit Rules, 2004 deals with Transitional provisions. According to that Rule, any amount of credit earned by a manufacturer under CENVAT Credit Rules, 2002 as they existed prior to the 10th day of September 2004, and remaining unutilized on that day shall be allowed as CENVAT credit to such manufacturer. Rule 11(2) speaks of a situation when a manufacturer opts for exemption under a Notification based on value or quantity of clearances in a financial year, in that situation, the manufacturer shall be required to pay an amount equivalent to the CENVAT credit in respect of inputs lying ins stock or in process or contained in final products lying in stock on the date when such option is exercised and after deducting the above said amount if any balance is lying then that balance would lapse. Such a situation actually has not arisen in the present case. Therefore, the conclusion of the Commissioner (Appeals) that the credit is not available and would lapse is not correct and legal. In our view, the credit lying unutilized would be actually available for transfer.
(c) As regards prior permission for transfer of credit, we find that as per Rule 10, there is no requirement of obtaining any prior permission from any authority. Moreover, the Tribunal, in the case of Solaris Bio-chemicals Ltd. v. CCE, Vadodara , has held that for transfer of credit to an amalgamated unit, no prior permission is required under this provision. As long as the input and capital goods are accounted to the satisfaction of the department, the credit is transferable.
(d) As regards the last point, we find that the appellant has already reversed the credit on input lying in stock, work in progress and finished goods as on 09.07.2004 when the duty on the finished products became Nil. Rule 10(3) requires that the transfer of Cenvat credit is subject to the condition that the stock of inputs, etc. are also transferred to the new site. The idea of incorporating this condition is that after availing credit, the inputs should not be diverted otherwise. In the present case, since the credit on the inputs has been reversed, this condition would not be applicable because in the credit which is transferred to the new unit, the amount which is reversed would not form part. In other words, Rule 10(3) would be applicable in a situation where the credit on account of the stock of inputs etc. forms part of the unutilised credit which is under transfer. In a situation where the credit on the stock of inputs is reversed, that Rule would not be applicable at all.
6.2. In view of the above position regarding the facts and law, we find that the appellants are rightly entitled for the transfer of unutilized credit to the tune of Rs. 15,85,47,475/-. Therefore, the impugned order is liable to be set aside. Thus, we allow the appeal with consequential relief, if any.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)