Customs, Excise and Gold Tribunal - Bangalore
Sree Rayalaseema Hi-Strength Hypo Ltd. vs The Commissioner Of Central Excise on 11 January, 2008
ORDER S.L. Peeran, Member (J)
1. This appeal arises from the Order-in-Appeal No. 153/2006 (V-II) CE dated 11.12.2006 by which the Commissioner (Appeals) has confirmed the Order-in-Original No. 31/2003-04, dated 30.09.2003, passed by the Joint Commissioner of Central Excise, Visakhapatnam-II Commissionerate. The appellants had availed Cenvat credit in respect of capital goods received by them in their factory. The capital goods were shifted to the another unit of the appellants which have also Central Excise registration certificate in their name. The Revenue proceeded to deny the Cenvat credit as capital goods had been shifted to another unit. The appellant's contention is that they had transported the capital goods by payment of Excise duty by debiting the Cenvat credit available with them. They had correctly followed the procedure and there was no violation of procedure for denying the credit in the matter.
2. The learned Counsel submits that the very issue is directly covered by the judgment rendered by this Bench in the case of Hewlett Packard (India) Sales (P) Ltd. 2007-TIOL-250-CESTAT-Bang. He placed a copy of the cited judgment before me for consideration.
3. The learned DR submits that the appellants are not eligible to transfer the credit to another unit on transfer of capital goods.
4. I have carefully considered the submissions made by both the sides. The issue to be considered in this matter is whether the assessee is entitled to transfer of the credit to their own unit. This very question had come up before this Bench for consideration in the case of Hewlett Packard (India) Sales (P) Ltd. and this Bench by Final Order No. 1953/2006 dated 14.11.2006 has answered the question in the assessee's favour. The findings recorded in Paragraph 6 are reproduced herein below:
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 Ltd. 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/- being 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 question of law, the relevant rule is Rule 10 CENVAT Credit Rules, 2004. The Rule is reproduced below:
Rule 10. Transfer of Cenvat 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 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.
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 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 of quantity), the accumulated credit would lapse and would not be allowed to be utilized for payment of duty or 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 in 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 unutilized 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. 15,85,47,476/-. Therefore the impugned order is liable to be set aside. Thus, we allow the appeal with consequential relief if any.
5. In view of the above findings, the transfer of credit by the assessee to their own unit after payment of duty is held proper in terms of the above citation. Hence the impugned order is not correct in law. Respectfully following the judgment rendered in the case of Hewlett Packard (India) Sales (P) Ltd. (supra), the impugned order is set aside and the appeal is allowed with consequential relief if any.
(Pronounced and dictated in the open court)