Do you know there is no prior permission required from the authority for transferring the CENVAT Credit pursuant to amalgamation/merger?

Rule 10 of the CENVAT Credit Rules, 2004 provides for the transfer of CENVAT credit which is read as follows:-

Rule10.  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. 

  

Now, the question arises whether there is any permission required to be taken from the CENVAT Department for utilization of the CENVAT credit by the amalgamated company???

Facts of the Case:-

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^st March 2003 and remaining 50% on 12^th May 2005.

The Company had entered into the Scheme of Amalgamation which was approved by Hon’ble Delhi High Court via order dated 9^th October 2006, stating that the effective date of transfer would be 1^st June 2005.

The Appellant had received the Certificate from Registrar of Companies making the amalgamation effective on 23^rd November 2006 and the appellant had also registered itself with the Central Excise Department.

At the time of verification of the records the Central Excise Department detected that the appellant had an CENVAT credit balance amounting to Rs.31,12,929/- which is 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 12th May 2005.The department was of the view that such credit is required to be transferred only after being allowed by the concerned Central Excise Officer as per 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^th August 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.

Advocate appearing for the appellant submitted that merger of M/s. Karamchand Appliances Pvt. Ltd. with the appellants company was effective from 01.06.2005 in terms of the Hon’ble Delhi High Court Order dated 09.10.2006. Thus, both the companies prior to such effective date i.e. 01.06.2005 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 that since disputed credit has not been utilised by the appellant, the question of its recovery through the impugned proceedings does not hold good.

Ruling of the Hon’ble Tribunal:-

Tribunal held that since the effective date of the transfer is 1^st June 2005, which has been specifically mentioned in the order dated 9^th October 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. M/s.Karamchand Appliances Pvt. Ltd. to the appellant prior to such date.

     

Further, it was held that 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 as per Rule 10 of the CENVAT Credit Rules, 2004.

Hence, the ground on which the case was presented by the department was not legally sustainable and the appeal was allowed in favour of the appellant.     

Thus, it makes it very much clear that that law provides for transfer of unutilized CENVAT credit, in the event of an amalgamation under Rule 10 of CENVAT Credit Rules and that there is no permission to be taken by the department in such event.