Is the prior permission required from statutory authority for transfer of Cenvat credit account resulting from amalgamation/merger?

PJ/CASE LAW/2016-17/3214

Case-S.C. JOHNSON PRODUCTS (P) LTD. Versus COMMISSIONER OF C. EX., CHANDIGARH

Citation-2016 (337) E.L.T. 422 (Tri. - Del.)

Brief Facts-The appellant herein, M/s. S.C. Johnson Products Pvt. Ltd., (formerly known as M/s. Karamchand Appliances Pvt. Ltd.) is a manufacturer of insecticides & Electrothermic Appliances falling under Chapters 38 & 35 respectively of the First Schedule to the Central Excise Tariff Act, 1985.The appellant acquired first 50% of the equity shares of M/s. Karamchand Appliances Pvt. Ltd. (Unit-II), Baddi on 21-3-2003 and remaining 50% on 12-5-2005. The scheme of amalgamation of the companies was approved by the Hon’ble Delhi High Court vide Order dated 9-10-2006, stating therein that the effective date of transfer would be from 1-6-2005. Thereafter, the appellant got the Certificate of registration from the Registrar of Companies under the Companies Act, 1956 on 23-11-2006. The appellant also got itself registered with the Central Excise Department on 24-1-2007, pursuant to the application made by it on 28-12-2006.
During the course of verification of the records in the factory of the appellant, the Officers of internal audit wing of the Central Excise Department detected that as on 12-5-2006, the appellant was having Cenvat credit balance of Rs. 31,12,929/- lying unutilised in its Cenvat account in relation to input/input service, which were utilised for payment of duty on goods manufactured/cleared on or after 12-5-2005. Utilisation of Cenvat credit was objected to by the Department, on the ground that such credit was required to be transferred to the appellant and thereafter to be utilised only after being allowed by the concerned Central Excise Officer in terms of sub-rule (3) of Rule 10 of the Cenvat Credit Rules, 2004. The show cause proceedings initiated by the Department culminated in the adjudication order dated 30-8-2011, wherein Cenvat credit of Rs. 31,12,929/- was disallowed and equal amount of penalty was imposed on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Besides, penalty of Rs. 10,000/- was also imposed on the appellant under Rule 25 of the Central Excise Rules, 2002. In appeal against the said adjudication order, the ld. Commissioner (Appeals) vide the impugned order dated 31-5-2010 has upheld the adjudged demand excepting in reducing the quantum of equal penalty to Rs. 5,00,000/-. Hence, this present appeal before the Tribunal.

Appelants Contention-Shri Shekhar Vyas, ld. advocate appearing for the appellant submitted that merger of M/s. Karamchand Appliances Pvt. Ltd. with the appellants company was effective from 1-6-2005 in terms of the Hon’ble Delhi High Court Order dated 9-10-2006. Thus, both the companies prior to such effective date, i.e., 1-6-2005 were separate entities and as such, there was no scope for transfer of disputed Cenvat credit of Rs. 31,12,209/- lying in the Cenvat credit account of M/s. Karamchand Appliances Pvt. Ltd. to the appellant, prior to such effective date. Hence, the submission of the ld. advocate is that since disputed credit has not been utilised by the appellant, the question of its recovery through the impugned proceedings is not in conformity with the statutory provisions. To substantiate his above stand that effective date of transfer would be from 1-6-2005 and not from the date of transfer of shares, i.e., 12-5-2005, the ld. advocate has relied on the decision of this Tribunal in the case of Commissioner of Service Tax, Delhi-I v. ITC Hotels Ltd. reported in 2012 (27)S.T.R.145 (Tri.-Delhi). The ld. advocate further submitted that Rule 10 of Cenvat Credit Rules nowhere specifies that prior permission is required from the statutory authorities for transferring the Cenvat credit as a result of merger/amalgamation.

Respondents Contention-On the other hand Shri G.R. Singh, ld. DR appearing for the respondent reiterated the findings recorded in the impugned order.

Reasoning Of Judgement-The tribunal have heard both sides and perused the records. They find from the available records that the share holdings of M/s. Karamchand Appliances Pvt. Ltd. has been transferred to the appellant on 12-5-2005, but the scheme of amalgamation was approved by the Hon’ble Delhi High Court vide their order dated 9-10-2006, giving effect to the amalgamation date as 1-6-2005. Since the Hon’ble High Court has specifically approved the ‘effective date’ of transfer of ownership as 1-6-2005, the date when mere share holdings were transferred, should not be considered as the effective date for the purpose of transfer of Cenvat credit. In this context, this Tribunal in the case of ITC Hotels Ltd. (supra) has held that scheme of amalgamation come into effect only when the same is approved by the High Court and not otherwise. Since, in the present case, the effective date of the transfer is 1-6-2005, which has been specifically mentioned in the order dated 9-10-2006 of the Hon’ble Delhi High Court, there is no scope of transfer of any Cenvat credit balance lying in the Cenvat credit account of M/s. Karamchand Appliances Pvt. Ltd. to the appellant prior to such date. Non -availability of Cenvat balance in the account prior to 1-6-2005 shows that the same might have been utilised by M/s. Karamchand Appliances Pvt. Ltd., for which the Cenvat demand cannot be fastened against the appellant.
On perusal of Rule 10 of the Cenvat Credit Rules, 2004, it reveals that there is no specific stipulation contained therein that prior permission is required from the statutory authorities for transferring the Cenvat credit as a result of amalgamation/merger. In absence of any specific prohibition contained in the statute book, in tribunal’s opinion, denial of Cenvat credit on this ground by the authorities below is not legally sustainable.
In view of the foregoing, they did not found any merits in the impugned order passed by the Commissioner (Appeals), and thus, the same is set aside and the appeal is allowed in favour of the appellant.

Decision-Appeal allowed

Comment-The crux of the case is that for the purpose of transfer of cenvat credit the effective date shall be the date on which the amalgamation/merger is approved by the High Court and not otherwise and accordingly no cenvat credit balance has been transferred to the amalgamated/merged entity prior to such effective date. As perRule 10 of the Cenvat Credit Rules, 2004, there is no specific stipulation contained therein that prior permission is required from the statutory authorities for transferring the Cenvat credit as a result of amalgamation/merger. Therefore in absence of any specific prohibition contained in the statute book, in tribunal’s opinion, denial of Cenvat credit on this ground by the authorities is not legally sustainable.

Prepared By-Neelam Jain

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PJ/CASE LAW/2016-17/3214

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