2009 (7) TMI 1121 - Commissioner - Central Excise

Summary

Issues Involved:
1. Legality of transferring unutilized Cenvat credit without physical transfer of inputs or capital goods.
2. Interpretation and application of Rule 10 of the Cenvat Credit Rules, 2004.
3. Imposition of penalty and interest under Section 11A and 11AC of the Central Excise Act.

Detailed Analysis:

Issue 1: Legality of Transferring Unutilized Cenvat Credit Without Physical Transfer of Inputs or Capital Goods
The appellant, engaged in manufacturing centrifugal pumps and electric motor parts, transferred unutilized Cenvat credit from its Dadra unit to its Shindewadi unit. The department alleged that the credit transfer was invalid without physical transfer of goods, leading to a Show Cause Notice (SCN) and subsequent confirmation of demand, interest, and penalty by the Additional Commissioner.

Issue 2: Interpretation and Application of Rule 10 of the Cenvat Credit Rules, 2004
The appellant argued that:
- The order by the Additional Commissioner was legally unsustainable.
- Consistent tribunal rulings state no prior permission is needed for transferring unutilized credit when shifting factories, as per Rule 10 of the Cenvat Credit Rules, 2004.
- The transfer of unutilized credit is not contingent on the quantity of inputs or capital goods available at the time of transfer.
- The Assistant Commissioner, Silvassa's letter acknowledged the transfer of inputs and capital goods, negating the need for physical transfer at the time of credit transfer.
- The appellant had cleared all stock on payment of duty before surrendering the registration in March 2004, and the Assistant Commissioner granted permission for credit transfer in December 2006, long after the factory had shut down.
- The appellant fulfilled all conditions of Rule 10, and the Assistant Commissioner's letter confirmed the transfer of inputs and capital goods.

The appellant cited several case laws supporting their position, including:
- Aar Aay Products Pvt. Ltd. v. C.C.E., New Delhi: Held that credit transfer is permissible even without physical stock of inputs at the old premises.
- Shree Rama Multi Tech Ltd. v. C.C.E., Pondicherry: Stated that actual transfer of inputs is not necessary for credit transfer.
- C.C.E., Pondicherry v. Dr. Reddy's Laboratories Ltd.: Allowed credit transfer despite inputs being utilized before amalgamation.
- C.C.E., Pondicherry v. CESTAT: Confirmed that rule does not require credit transfer to be proportional to the quantum of inputs transferred.

The order noted that the appellant's activities were transparent and that the delay in permission was due to the department's inaction. The department's SCN and subsequent order were based on a misinterpretation of Rule 10(3), as the appellant had cleared goods on payment of duty, which should be considered equivalent to physical transfer.

Issue 3: Imposition of Penalty and Interest
The adjudicating authority imposed an equal penalty, which the appellant contested, arguing that penalty requires mens rea, which was absent as their actions were transparent and compliant with the law. The delay in granting permission was due to the department's fault, not the appellant's. Consequently, the imposition of penalty and interest was deemed unjustified.

Conclusion:
The appeal was allowed, setting aside the impugned order. The appellant was found eligible to avail the transferred Cenvat credit, and the imposition of penalty and interest was deemed inappropriate.