Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  Dept. Can’t Classify Product as Zarda Scented Tobacco After Repeatedly Approving It As Chewing Tobacco: CESTAT *  Mere Uploading Of GST Order On Portal Is Not “Valid” Service: Tripura HC *  CGST Can Proceed Even If SGST Closed Similar Case Earlier: Delhi HC *  SC upholds 28% GST on online gaming with retrospective effect. *  West Bengal Govt cuts E-way Bill Threshold limit to Rs. 50,000 for intra-state goods movement. *  Criminal Prosecution Under Central Excise Act Can’t Continue After CESTAT Sets Aside Duty Demand on Merits: Punjab & Haryana High Court. *  Madras High Court Quashes GST Assessment Orders for Denial of Personal Hearing; Remands Matter Subject to 10% Deposit *  Ex Parte GST Order: Madras High Court Directs Immediate Removal of Bank/ITC Attachment Upon 25% Deposit *  J.K. Cement Receives GST Demand Order of Rs 8,02,113/- from Ahmedabad Tax Authority *  Delhi Police EOW Busts Alleged Rs. 128 Crore GST Fake Invoice Network. *  REPLY TO SCN CAN’T BE TREATED AS “EMPTY FORMALITY”: ORISSA HIGH COURT QUASHES GST DEMAND OF RS. 57.30 LAKH *  Challenge to CGST Provisions restricting ITC to Bonafide Purchasers : Allahabad HC issues notice *  CBIC Notifies Revised Customs Tariff Values for Edible Oils, Gold, Silver, Brass Scrap and Areca Nuts *  Delhi HC Orders Removal of GST Attachment After Statutory 1 Year Period Expired *  GSTAT Extends Relaxed Appeal Filing Guidelines till December 31, 2026 *  AO fails to Provide Import - Export Data from DGFT to Taxpayer for Reconciliation *  Gold, Silver Imports To Get Costlier As Govt Raises Customs Duty To 10%  *  GSTAT Enables Pre-Payment Access to Document Upload and Checklist for GST Appeal Filing *  GST Portal Restrictions Can’t Override Statute: Gujarat HC Allows Cross-State Transfer Of CGST ITC After Amalgamation *  Centre Revises HS Codes for Large Diameter Steel Pipes Used in Oil & Gas Pipelines *  Customs Duty Liability Arises On Warehouse Clearance Date: Supreme Court *  Government lifts export ban on de-oiled rice bran *  CESTAT Grants 12% Interest on Pre-Deposit for Investigation from Date of Deposit till Refund and Denies Interest on Interest. *  Government Overhauls GST Classification Framework for Non-Alcoholic Beverages; Fruit Juice Drinks, Milk-Based Beverages and Caffeinated Drinks to Attract Revised 5% and 40% GST Rates from May 1, 2026 *  India’s gross GST collections hit a record Rs 2.42 lakh crore in April, up 8.7% *  Customs clearance stalled, revenue hit over MRP dispute *  Shipping Corporation explores Middle East routes as Hormuz tensions disrupt cargo movement *  India, Kenya signs MoU for exchange of pre-arrival customs information *  No demand of Taxes under Reverse Charge if Tax Already Discharged by Service Provider under forward charge *  The India-New Zealand Free Trade Agreement, signed "once-in-a-generation" deal that eliminates tariffs on 100% of Indian exports to New Zealand
Subject News *  Consignment Sales Can’t Be Reclassified as Inter-State Sales Based on Pre-Agreement Evidence: CESTAT *  Exporter Can’t Be Denied Advance Authorization Benefit Due To ICEGATE Technical Glitch: Delhi High Court *  No GST Demand For Mere Wrong Set-Off Of IGST Credit Under CGST And SGST Heads: Kerala HC. *  Cenvat Credit Can’t Be Denied on Input Services Having Nexus With Manufacturing Activities: CESTAT *  Pending Proceedings Can’t Survive Without Saving Clause: Calcutta High Court Quashes GST Demand of Rs. 6.28 Crore After Omission of Rule 96(10) *  Madras HC Quashes GST Demands on TASMAC (Tamil Nadu State Marketing Corporation) Bar Licence Fee *  GST Proceedings Cannot Survive Omitted Rule Without Saving Clause: Calcutta HC *  Provisional Release Can’t Be Denied Solely On Dept. Suspicion Of Misclassification And Undervaluation Of Imported Goods: CESTAT *  Businesses Should Not Be Kept Outside GST Regime Without Due Process: Gauhati High Court *  Punjab & Haryana HC Directs Reconsideration of Contractors’ Claim for Additional GST Payment After Tax Rate Hike From 12% to 18% *  S. 108 Statements Can’t Be Sole Basis Without Following Section 138B Procedure: CESTAT *  Bombay High Court Frames Key Questions on Mandatory Distribution of ITC U/s 20 CGST Act *  Filing of Annexure-B for Refund Applications involving Accumulated ITC using the offline utility in GST portal: GSTN *  No Service Tax on Parent Company’s Un-Invoiced Cost Allocations Without Actual Service or Consideration: CESTAT  *  Calcutta High Court Upholds GST Classification of Polypropylene Leno Bags as Plastic Products *  DRC-01 Summary Can’t Replace Mandatory SCN: Gauhati High Court *  GSTAT Issues Major Bench Allocation Framework; All Appeals to First Go Before Division Bench *  ITC Blocking Without Reasoned Order Violates Rule 86A; Punjab & Haryana HC Directs Release of Credit *  Allahabad HC Refuses Bail to CGST Superintendent In Rs. 70 Lakh Bribery Case *  S.130 Can’t Be Invoked Without Prior Tax Determination U/s 73/74: Allahabad High Court Quashes GST Confiscation Proceedings *  SC grants Bail to Rs 54cr GST case  *  Karnataka HC Sets Aside Duplicate GST Orders, Orders Fresh Hearing on GSTIN Cancellation *  DRC-01 Summary Can’t Replace Mandatory SCN: Gauhati High Court *  Transfer Of Unutilized ITC After Amalgamation - Supreme Court Issues Notice *  PUNJAB & HARYANA HC QUASHES GST CANCELLATION NOTICE FOR FAILURE TO PROVIDE CBIC ENQUIRY REPORT *  LICENSE FEE, TECHNICAL ASSISTANCE CHARGES NOT INCLUDIBLE IN CUSTOMS VALUE UNLESS THEY ARE A CONDITION OF SALE: CESTAT *  DELHI HC ORDERS REMOVAL OF GST ATTACHMENT AFTER STATUTORY 1 YEAR PERIOD EXPIRED *  CUSTOMS BROKER CAN’T BE FAULTED JUST BECAUSE EXPORTER’S GST REGISTRATION WAS PREVIOUSLY CANCELLED: CESTAT   *  Supreme Court Dismisses Review Plea Against Delhi HC Ruling Holding Real Operator Behind Fake GST Firms Liable As ‘Taxable Person  *  GST Appeal Can’t Be Rejected Merely Because DRC-07 Was Not Uploaded On Portal: Bombay High Court  

Comments

Print   |    |  Comment

PJ/CASE LAW/2015-16/2717

Transfer of cenvat credit on change in ownership of unit.

Case:-JAI CORPORATION LTD. VERSUSCOMMISSIONER OF CENTRAL EXCISE, VAPI
 
Citation:-2015 (315) E.L.T. 283 (Tri. - Ahmd.)
 
Brief facts:- This appeal is directed against the O-I-O No. 10/DEM/VAPI/2007, dated 14-9-2007.
The relevant facts, in brief, are that M/s. Jai Corp Ltd (Spinning Division), Survey No. 246, Vasona Village, Khanvel Road, Silvassa (hereinafter referred to as M/s. Jai Corp for the sake, of brevity) is engaged in the manufacture of synthetic blended/spun yarn falling under Chapter sub-headings 5509 51 00 and 5509 21 00 of the Central Excise Tariff Act, 1985 and holding Central Excise Registration No. AAACJ2591AXM010.
That during the scrutiny of ER-1 for the month of January, 2006 submitted by the assessee, it was noticed that the unit has wrongly availed Cenvat credit of Rs. 1,57,09,460/- showing as “old credit balance transferred from M/s. Santogen Spinning Mills, Sr. No. 246, Khadoli Road, Vasona, Silvassa” under Para 5 of the Return. On verification of records available, it appeared that M/s. Santogen Spinning Mills, Silvassa (a unit of M/s. Sonu Synthetics Ltd.) was a manufacturing unit of excisable goods under Central Excise Registration Certificate No. AAACS 5523 RXM 001, dated 5-12-2001, submitted their monthly returns i.e. ER-1 up to June, 2005.
That on 6-6-2005, M/s. Assets Reconstruction Company (India) Ltd. (hereinafter referred to as ‘Arcil’) had taken the possession of M/s. Santogen Spinning Mills (Unit of Sonu Synthetics Ltd.) and thereafter their various custodian-cum-agents carried out manufacturing activity in their name without obtaining Central Excise Registration and without following any Central Excise procedure. M/s. Santogen Spinning Mills, got their Central Excise Registration cancelled on 12-1-2006.
That M/s. Yashash Yarns Pvt. Ltd., vide their Letter dated 17-6-2005 intimated that Range Office that M/s. Santogen Spinning Mills (Unit of Sonu Synthetics Ltd.) has been taken over by M/s. Arcil and appointed them as custodian-cum-agent. M/s. Yashash Yarns Pvt. Ltd. also informed that they would avail exemption under Notification No. 30/2004-C.E., dated 9-7-2004 as amended by Notification No. 10/2005-C.E., dated 1-3-2005 and did not require to function as Central Excise registrant.
That M/s. Akhilesh Spintex Pvt. Ltd., vide their letter dated 30-8-2005 intimated the Range Office that M/s. Santogen Spinning Mills, Silvassa (Unit of Sonu Synthetics Ltd.) has been taken over by Asset Reconstruction Company (India) Ltd. (ARCIL) and appointed them as custodian-cum-agent. M/s. Akhilesh Spintex Pvt. Ltd. also informed that they would avail exemption under Notification No. 30/2004-C.E., dated 9-7-2004 as amended Notification No. 10/2005-C.E., dated 1-3-2005 and did not require to function as Central Excise registrant.
That the unit of M/s. Santogen Spinning Mills, Silvassa was later on sold out to M/s. Jai Corp. directly by M/s. Arcil and M/s. Jai Corp. obtained a fresh Central Excise Registration certificate No. AAACJ 2591 AXM 010, dated 9-12-2005 to carry out their manufacturing activity following the procedure of Central Excise Law; that M/s. Jai Corp. Limited does not have any understanding or any contract with M/s. Santogen Spinning Mills, Silvassa and appointed M/s. Yashash Yarn Pvt. Ltd. and then M/s. Akhilesh Spintex Pvt. Ltd. as a custodian-cum-agents who decided not to work under Central Excise Registration availing the benefit under Notification No. 30/2004-C.E., dated 9-7-2004, even though in the month of January 2006, M/s. Jai Corp. Ltd. availed credit of Rs. 1,57,09,460/- showing as old credit balance transferred from M/s. Santogen Spinning Mills. On verification of the records i.e. RG-23A Pt II, it was observed that vide Entry No. 109 dated 30-1-2006 M/s Jai Corp. have taken Cenvat Credit of Rs. 1,53,92,959/- and in RG-23C Pt. II, vide Entry No. 27, dated 30-1-2006 of Rs. 3,16,501 which totally comes to Rs. 1,57,09,460/-. M/s Jai Corp. has been utilizing the Cenvat credit wrongly taken towards payment of Central Excise duties.
Show cause notice was issued to the appellant as to recover the said Cenvat credit availed with interest and also for imposition of penalty. Appellant herein contested the issue on merit as well as on limitation. The adjudicating authority did not agree with the contentions raised and confirmed the demand as in-eligible Cenvat Credit, interest thereof and also imposed equivalent penalty and also imposed penalties on individuals.
 
Appellant’s contention:- Ld. Counsel appearing on behalf of appellant would take us through the impugned order. After referring to the various findings recorded by the adjudicating authority, he also refers to the show cause notice and the allegations made therein. It is the submission that appellant herein had purchased the assets of defunct M/s. Santogen Spinning Mills along with the assets and liabilities thereof. He would submit that the Cenvat credit which has been availed by the appellant was shown in the assets and the liabilities as available to M/s. Santogen Spinning Mills. He would then submit that the appellant had taken the Central Excise registration certificate and filed the returns with the authorities. He would submit that the appellant has not done anything wrong holding for disallowing Cenvat credit to him. After referring to the sale certificate given by M/s. Assets Reconstruction Company (India) Limited (hereinafter referred to as M/s. ARCIL), he would submit that the said sale certificate clearly indicates that the appellant had taken over the assets and liabilities in toto. It is his submission that having taken over the assets and the liabilities together, the appellant was entitled for Cenvat credit lying in balance of M/s. Santogen Spinning Mills.
 
Respondent’s contention:- Ld. D.R., on the other hand, would draw their attention to the fact that during the interregnum period, before M/s. ARCIL sold the property to the appellant, two independent processors were processing their goods in the said property on being authorized by M/s. ARCIL. It is his submission that it is not very clear as to whether the property of M/s. Santogen Spinning Mills was handed over to the appellant along with the inputs or otherwise. He would submit that the ratio of the decision of the Tribunal in the case of Shasun Pharma Ltd. v. CCE, Trichy - 2003 (162)E.L.T.882 (Tri.-Chennai.)would apply in this case as there was evidence of stock of input of final product, when the property was taken over by the appellant.
 
Reasoning of judgement:- On perusal of the impugned order, they find that the issue involved is regarding denial of Cenvat credit which was availed by the appellant when they purchased the property from M/s. ARCIL. It is undisputed that M/s. Santogen Spinning Mills was taken over under SAFARESI Act by the bankers and handed over to M/s. ARCIL. The findings of the adjudicating authority basically revolves around the provisions of Rule 10 of Cenvat Credit Rules, 2004 for denying the Cenvat credit on the ground that there was no transferring of the inputs and capital goods to the appellant herein.
In their considered view, the findings recorded by the adjudicating authority are incorrect for more than one reasons.
In order to appreciate the correct position, it is required that the provisions of Rule 10 of CENVAT Credit Rules, 2004 be read.
“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 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.”
It can be noted from the above reproduced rule that transfer of CENVAT credit has been provided in said provision in sub-rule (1). On deeper perusal of sub-rule (1), it is very clear that when there is change in ownership or on account of sale, with specific provision for transfer of liability, then the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized to such transferred/sold factory. In the case in hand, it is undisputed that the CENVAT credit which has been availed by the appellant herein was lying in RG-23A Part II register of M/s. Santogen Spinning Mills and was unutilized.
The question which now remains to be answered is whether the appellant herein had purchased the entire property along with the assets and liabilities or not. It would be proper to reproduce the sale certificate issued by M/s. ARCIL.
 
SALE CERTIFICATE
(For Movable & Immovable Property)
Whereas
The undersigned being the Authorised Officer of the Asset Reconstruction Company (India) Ltd. and having its registered office at 17th Floor, Express Towers, Nariman Point, Mumbai 400 021 (hereinafter referred to as “ARCIL”) acting in its capacity as trustee of Arcil-CPS-002-T Trust under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and in exercise of the powers conferred under sub-section (12) of Section 13 read with rules 7 & 9 of the Security Interest (Enforcement) Rules, 2002 has in consideration of the payment of Rs. 19.25 Crores (Rupees Nineteen Crores & Twenty Five Lakhs) sold on behalf of the following secured creditors (hereinafter referred to as “Secured Creditors”)
1.         Arcil as trustee of Arcil-CPS-002-I Trust
2.         Unit Trust of India
3.         Life Insurance Corporation of India
4.         Industrial Investment Bank of India Ltd
5.         Arcil as trustee of Arcil-Sonu Synthetics Ltd. Trust
6.         Vijaya Bank
7.         Calyon Bank
in favour of M/s. Jai Corp. Ltd., a company registered under the Companies Act, 1956 and having its registered office at A-6, MIDC, Indl. Area, Nanded - 431 603 the assets described and shown in the Schedule hereto, secured in favour of the Secured Creditors by M/s. Sonu Synthetics Ltd. towards the financial facilities offered by Secured Creditors as under :

Name of the Secured Creditor Principal Outstanding (Rs. in Crores) (As on 31-3-2004)
ARCIL as trustee of ARCIL-CPS-002-I Trust 11.20
Unit Trust of India 0.50
Life Insurance Corporation of India 1.28
Industrial Investment Bank of
India Ltd.
1.48
ARCIL as trustee of ARCIL-Sonu
Synthetics Ltd. Trust
4.55
Vijaya Bank 6.15
Caylon Bank 5.73
 

 
The undersigned acknowledges the receipt of the sale price in full and has handed over the delivery and possession of the schedule property.
The details of the payments received by Arcil are as given below.

S. No. Cheque No. Date Amount (Rs.) Bank
1 244473 23,11,2005 4,81,25,000.00 Canara Bank
2 241178 26,11,2005 14,43,75,000.00 Canara Bank
    TOTAL 19,25,00,000.00  
 

 
The sale of the schedule property has been made with all encumbrances and liabilities including all workers’ dues, known and unknown (except all encumbrances and liabilities to secured creditors in respect of above financial facilities including interest thereon as against the scheduled properties), as per the terms and conditions governing the Invitation to Quotation attached herewith as Annexure I. The sale has been made subject to the terms and conditions.
                        (emphasis supplied)
It can be seen from the above reproduced sale certificate issued by M/s. ARCIL (Assets Reconstruction company which is formed under the provisions of RBI Act), it transpires that the entire property of M/s. Santogen Spinning Mills was handed over to the appellant with all the encumbrances and liabilities which are known and unknown. It would be correct to record that the appellant herein had procured the assets and liabilities from M/s. ARCIL, which would include the credit balance lying in books of account of M/s. Santogen Spinning Mills. In their considered view, having accepted the entire assets and liabilities together, the appellant cannot be denied the Cenvat credit which is lying in balance as unutilized credit in the books of account of M/s. Santogen Spinning Mills.
The decision relied upon by the ld. D.R. would not carry the case of the Revenue any further, as in that case, the Tribunal had clearly recorded that the assessee, even after surrender of registration certificate, chose to retain Central Excise record which made it clear that they wanted to make a debit entry even after surrender of licence. In the case in hand, it is on record that the Central Excise registration certificate issued to M/s. Santogen Spinning Mills was surrendered after granting of Central Excise registration to the appellant herein. Since the facts are totally different, the ratio as proposed by the ld. D.R. will not be applicable in the case in hand.
In view of the foregoing, they hold that the impugned order is incorrect, unsustainable and liable to be set aside.
The impugned order is set aside and the appeal is allowed with consequential relief, if any.
 
Decision:-Appeal allowed.
 
Comment:- The analogy of the case is that as per Rule 10 of CENVAT Credit Rules, 2004 when there is change in ownership or on account of sale, with specific provision for transfer of liability, then the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized to such transferred/sold factory. In this case, unutilized CENVAT credit that was lying in RG 23A Part-II at the time of transferring of unit to appellant was available to the appellant because they have taken over entire property with all burden and liabilities. As the conditions of Rule 10 of the Cenvat Credit Rules have been satisfied, the transfer of credit was allowed.
 
Prepared by:- Monika Tak

Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com