Customs, Excise and Gold Tribunal - Delhi
Chandra-Hi-Tech Engineers Pvt. Ltd. vs Collector Of C. Ex. on 10 February, 1997
Equivalent citations: 1997(93)ELT599(TRI-DEL)
ORDER G.R. Sharma, Member (T)
1. The Collector, Central Excise (Appeals), in his order dated 13th May, 1993 held that the benefit of Modvat credit is allowable under Rules to a Manufacturer and the Rules are framed with regard to the manufacturer. It is therefore, legally in order if the balance of the modvat credit has not been allowed to be transferred to the new manufacturer, namely M/s. Chandra Hi-Tech Engineers. The same is the position with regard to the PLA balance.
2. The facts of the case are that M/s. Chandra Industries was partnership firm consisting of six partners. They were manufacturing street lighting poles, hamilton poles, C.I. brackets etc. They were registered with the Central Excise Department and were availing Modvat benefit. The firm was registered with the Director of Industries as a SSI unit. This partnership firm was dissolved and a new firm by the name of M/s. Chandra Hi-Tech Engineers Pvt. Ltd. came into existence. They took over the firm M/s. Chandra Industries along with all the assets. M/s. Chandra Hi-tech Engineers Pvt. Ltd. applied to the Asstt. Collr. for permission to carry forward the balance of credit lying in their RG 23A Part I and Part II and also the balance lying in PLA register. The A.C. informed the appellants that since the manufacturing from the old firm had been closed, the unutilised balance of RG 23A Part II automatically lapses and hence cannot be allowed to be transferred to the new firm. Being aggrieved by this order, the appellants went in appeal before the Collr.(Appeals). The Collr. (Appeals) upheld the order of the A.C. and rejected the appeal of the appellants and hence the appeal before us.
3. Shri Naveen Mullick, ld. Advocate appearing for the appellants submitted that by taking the assets and liabilities, the appellants should be treated as the same manufacturer; that the Director of Industries has also treated them as the same manufacturer; that since they had taken the liabilities of the old firm they are entitled to take over the rights of the old firm; that they should be treated at par for the purpose of taking into their books of accounts the unutilised credit of Modvat lying in the old firm's account; that they were entitled to this even under Rule 57F(6) of the Central Excise Rules, 1944.
4. The ld. Counsel also submitted that a copy of memorandum and articles of association of Chandra Hi-Tech Engineers Pvt. Ltd. was enclosed which clearly shows that the successor firm is the same factory as all the assets and liabilities have been taken over. He also submitted that the certificate issued by the Registrar companies shows that M/s. Chandra Hi-Tech Engineers Pvt. Ltd. is a limited company. The ld. Counsel submitted that a perusal of the memorandum and articles of association shows that all liabilities and assets of the partnership concern have been taken over by the new company and therefore, they should be entitled to the transfer of the amount of Modvat credit lying in the books of M/s. Chandra Industries. The ld. Counsel also submitted that this Tribunal in the case of Ashapura Electricals Ltd. v. C.C.E., reported in 1989 (42) E.L.T. 709 had held :
7. As regards the issues (i) (ii) above, it is apparent from the Articles of Association that they have acquired and taken over as a going concern, the assets and liabilities of the partnership firm and to carry on the business conducted by the said firm. Hence, any liability which would have arisen during the period of partnership firm for which proceedings have been initiated would be answerable by the successor firm. In the same way any benefit which have occurred to the partnership firm would also be available to the successor company. This is evident from the Articles of Association. Now the question is whether it is right to hold that the permission obtained by the partnership firm gets vitiated because of the non-observance of the provisions prescribed under Sub-rule (2) of Rule 56A. In this case admittedly there is a permission granted to the erstwhile partnership firm and this permission is also a property of the partnership firm, which has been taken over by the successor company. Be that as it may, the department themselves have not chosen to issue a fresh licence treating the company as an entirely different manufacturing concern. They have merely amended the licence and also permitted them to continue the stock in RG1 without requirement of payment of duty. The only safeguard which they have taken is obtaining of a fresh B-2 Bond. In this view of the matter, there is considerable force in the argument of Shri Christian that the benefit of the permission granted to the erstwhile partnership firm would continue to be available to the succeeding company. In any case, with this permission and with the following of the procedural requirements under Rule 56A, they should be considered to have substantially complied with the requirements under Rule 56A. Hence, we are of the view that there is no justification for denial of the proforma credit only on the ground that fresh permission has not been obtained by the succeeding company in terms of Sub-rule (2) of Rule 56A. Though the two judgments cited by the learned advocate related to non-production of D-3 declaration, the judgement of the Bombay High Court cited by him 1988 (17) ECR 17 relates to a case where even the application for proforma credit has not been given. In this view of the matter, we conclude that in the case of this type denial of proforma credit on this technicality is not called for and also legally not tenable. Since we have already decided the appeal on the basis of the fact and law made out in issue at Sl. No. (1)(e) above, it is not necessary for us to go into merit of the other issues. Accordingly, we allow the appeal and direct the consequential relief to the appellants.
He submitted that though this decision of the Tribunal is on Rule 56 A however, Modvat scheme is more or less similar to proforma credit under Rule 56A, therefore, the ratio of this decision should be equally applicable to cases under Modvat scheme. He submitted that in view of the above submissions and case-law cited and relied upon their case was fully covered by the ratio of this judgment and therefore, prayed that the appeal may be allowed.
5. Shri P.K. Jain, the ld. SDR submitted that partnership concern and Pvt. Ltd. Company are legally two separate and distinct entities and the one cannot be termed as a successor of the other inasmuch as whenever a partnership concern is converted into private limited company, the partnership is dissolved and thus goes out of existence and entirely a new company is born. He submitted that in this -legal position, the lower authorities have rightly denied them the transfer of the balance in RG 23A Part II register from M/s. Chandra Industries to M/s Chandra Hi-Tech Engineers Pvt. Ltd. He reiterated the findings of the lower authorities in support of this contention and prayed that the impugned order may be upheld.
6. Heard the submissions of both sides. We find that Modvat credit is admissible under rule 57A of the Central Excise Rules, 1944. Rule 57A stipulates that Modvat credit of duty can be taken if the inputs and the final products are specified by Notification under this Rule and that if the input and the final product are specified then Modvat credit can be taken. There is no dispute about specification of the product under Notifications issued u/r 57A. Utilization of Modvat credit has been provided for u/r 57F. Rule 57F(1) provides: "The inputs in respect of which a credit of duty has been allowed under Rule 57A may be used in or in relation to the manufacture of final products for which such inputs have been brought into the factory; or shall be removed, after intimating the Asstt. Collr of Central Excise having jurisdiction over the factory and obtaining a dated acknowledgement of the same from the factory for home consumption or for export under bond, as if such inputs have been manufactured in the said factory." Sub-rule (6) of Rule 57F provides : "No part of the credit of duty allowed shall be utilised save as-provided in Sub-rule (3)." Sub-rule (3) of Rule 57F provides :
(3) Notwithstanding anything contained in Sub-rule (1), a manufacturer may, after intimating the Asstt. Collr. of Central Excise having jurisdiction over the factory and obtaining dated acknowledgement of the same, remove the inputs as such, or after the inputs have been partially processed during the course of manufacture of final products, to a place outside the factory -
(a) for the purposes of test, repairs, refining, recondioning or carrying out any other operation necessary for the manufacture of the final products and return the same to his factory for further use in the manufacture of the final product, or remove the same without payment of duty under bond for export, provided that the waste, if any, arising in the course of such operation is also returned to the said factory;
(b) for the purposes or manufacture of intermediate products necessary for the manufacture of the final products and return the said intermediate products to his factory for further use in the manufacture of the final product or remove the same without payment of duty under bond for export, provided that the waste, if any, arising in the course of manufacture of such intermediate products is also returned to the said factory:
Provided that the said waste need not be returned to the said factory if the appropriate duty of excise leviable thereon has been paid."
Sub-rule (4) of Rule 57F provides :
(4) Credit of specified duty allowed in respect of any inputs may be utilised towards payment of duty of excise -
(i) on any of the final products in or, in relation to the manufacture of which such inputs are intended to be used in accordance with the declaration filed under Sub-rule (1) of Rule 57G, or
(ii) on the waste, if any, arising in the course of manufacture of the final products; or
(iii) on the inputs themselves if such inputs have been permitted to be cleared under Sub-rule (1) :
Provided that the credit of specified duty in respect of inputs used in the final products cleared for export under bond or used in the intermediate products cleared for export in accordance with Sub-rule (2), shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government by Notification in the Official Gazette :
Provided further that no such refund of credit of duty shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties (Drawback) Rules, 1971, or claims rebate of duty under Rule 12A, in respect of such duty :
Provided also that the credit of specified duty in respect of inputs used in the final products cleared either to a unit in a Free Trade zone or to a hundred per cent Export Oriented Unit under bond shall be allowed to be utilised towards payment of duty of excise on similar final products cleared for home consumption on payment of duty."
7. Reading the above Rules together, we find that the important point running through all of these provisions is that the credit of duty taken should be utilised for payment of duty on the final product in which these inputs are used. There is no doubt that M/s. Chandra Industries had procured the inputs for manufacture of the final product. The nature and character either of the input or the final product does not change if in the meantime the factory changes hands unless the inputs are not handed over to the successor or there are no inputs to be handed over to the successor. There is no allegation to show that there were no inputs on the date when the new firm applied for transfer of the balance of the RG 23 A Pt. I & Pt. II. There is no allegation that the inputs and the finished goods were not taken over by the new factory or the new licensee, the role of the licensee becomes minor if the inputs and the final products are taken over and used for the purpose as provided for under Rule 57. We also observe that these goods either in the form of inputs or in the form of final products on which credit can be taken or utilised for payment of duty were taken over by the successor as there is no corresponding demand of duty on goods lying in the bonded store room. The licence is not very material if all the liabilities and assets in the form of inputs and final products are taken over by the succeeding unit. Thus the dissolution of the partnership will not alter the character of inputs as inputs and the character of final product as final product if the inputs and the final products were taken over by the succeeding firm.
8. We find that the Tribunal had considered similar situation though under Rule 56A. We observe that in that case also, a partnership firm was converted into a limited company and the assets and liabilities of the partnership firm were acquired by the limited company. In the instant case, we find that permission was granted to M/s. Chandra Industries for availing Modvat credit by following the procedure of Rule 57A read with Rule 57G. We also observe that articles of association of the successor company M/s. Chandra Hi-Tech Engineers Pvt. Ltd. had acquired and taken over as a going concern of the assets and liabilities of the partnership firm and carried on the business conducted by the said partnership firm. We find that the ratio of this decision of the Tribunal cited and relied upon by the appellants covers the present case on all fours. We also observe that the legal position as examined above also covers the situation fully. Following the ratio of this decision, we hold that the appellants are entitled to the transfer of balance amount lying in RG 23A Part II on the date of conersion in the account of M/s. Chandra Industries.
9. In the result, the appeal succeeds. Consequential relief, if any, shall be admissible to the appellants in accordance with law.