2014 (4) TMI 93 - AT - Central Excise

CENVAT Credit - Whether the excess credit lying in the books of accounts of the appellant can be transferred when the factory is shifted from one site to another, even if inputs or capital goods are not available for shifting or only part of the inputs or capital goods are available for shifting - Held that - Rule 10 of the CCR, 2004 envisages that when a factory transferred from one site to another, the credit lying the books of accounts can be transferred. Sub-rule (3) further stipulates that, if any inputs and capital goods are lying, then they should also be transferred to the new site. The said Rule, nowhere stipulates that the credit that can be transferred should be attributable to the inputs or capital goods that are transferred. Even if excess credit is available in the books or accounts, the same can be transferred. Therefore, there is no bar imposed under sub-rule (3) of Rule 10 of CCR, 2004 in transferring excess credit available in the books of accounts which is more than those attributable to the inputs and capital goods lying in stock - appellant has made out a strong case for grant of stay - Following decision of Ispat Industries Ltd. 2013 (7) TMI 308 - CESTAT MUMBAI and CCE, Pondicherry 2008 (7) TMI 116 - HIGH COURT MADRAS - Stay granted.

Summary

Issues:
1. Disallowance of Cenvat credit by the Commissioner of Central Excise.
2. Interpretation of Rule 10(3) of the Cenvat Credit Rules, 2004 regarding transfer of excess credit during factory relocation.

Analysis:

Issue 1: Disallowance of Cenvat credit
The appellant, M/s. Kirloskar Oil Engines Ltd., appealed against the disallowance of Cenvat credit amounting to Rs.1,88,20,958/- by the Commissioner of Central Excise, Kolhapur. The disallowed credit was ordered to be recovered under Rule 14 of the Cenvat Credit Rules, 2004, along with interest and a penalty under Rule 15(2) of the CCR, 2004. The appellant contended that they had transferred inputs from a closed unit to another location and reversed proportionate Cenvat credit. The department alleged non-compliance with Rule 10(3) of the CCR, 2004, which requires the transfer of inputs or capital goods when relocating a factory. The appellant argued that the excess credit in their accounts was legitimately transferred as per the rule, supported by precedents like the Ispat Industries Ltd. case and decisions of the Madras High Court. The Tribunal granted a stay on recovery, considering the legality of the credit transfer.

Issue 2: Interpretation of Rule 10(3) of the Cenvat Credit Rules
The Tribunal analyzed Rule 10(3) of the CCR, 2004 to determine if the excess credit in the appellant's accounts could be transferred during the relocation of a factory, even if not all inputs or capital goods were moved. It was observed that the rule allows for the transfer of credit lying in the books of accounts when a factory is shifted, without mandating that the credit must correspond to the transferred inputs or capital goods. The Tribunal referenced the Ispat Industries Ltd. case and the Madras High Court decision to support the interpretation that excess credit available in the books can be transferred, irrespective of the physical transfer of inputs or capital goods. Consequently, the Tribunal found in favor of the appellant, granting a stay on the recovery of the disallowed credit amount during the appeal process.

This detailed analysis of the legal judgment addresses the issues involved, the arguments presented by the parties, and the Tribunal's reasoning leading to the decision to grant a stay on the recovery of the disallowed Cenvat credit.