2014 (10) TMI 52 - AT - Central Excise

CENVAT Credit - Transfer of company - Associate enterprise amalgamated with assessee - Department intimated about such transfer - Held that - As on January, 2011 when the merger took place, whatever credit was available in the books of BASFI was transferred to the appellant. I find from the. records that the department was intimated about the merger and availment of credit in the books of BASFI by the appellant in October, 2011 and this has not been objected to. Moreover I also find that Rule 10 of Cenvat Credit Rules, 2004 provided that where the entire assets are taken over by another company and transferred, the credit available in the books of account also get transferred. Therefore the entire exercise undertaken by the Revenue became infructuous because both the companies merged and by the time proceedings were initiated technically from the date of order of the High Court, the merger also has taken place and therefore whatever credit was available in the books of account of BASFI has to be transferred to the appellant in January, 2011 itself. Even though in reality the actual transfer of the credit was made only in October, 2011 - services were utilized in both the units and therefore proportionate credit should have been availed. It was also submitted by the learned counsel that BASFI was also paying excise duty and they were making payment from both PLA and Cenvat credit account. In such a situation it cannot be said that there was an intention to avail wrong credit since BASFI would have also utilized the credit. Since before passing the Order-in-Original the credit had already become part of the credit of appellant and the BASFI ceased to exist - Decided in favour of assessee.

Summary

Issues:
1. Denial of credit of Service Tax on common services.
2. Calculation and allowance of proportionate credit.
3. Impact of merger on credit transfer.
4. Interpretation of Cenvat Credit Rules, 2004.
5. Fairness and legality of denying credit post-merger.

Issue 1: Denial of credit of Service Tax on common services
The appellant, an associated enterprise, faced objections regarding the credit of Service Tax on various services used by both the appellant and BASF India Ltd. (BASFI). The original adjudicating authority denied the entire credit amount of Rs. 15,26,424 based on the shared usage of services. However, the Commissioner (Appeals) later allowed proportionate credit to the appellant.

Issue 2: Calculation and allowance of proportionate credit
The appellant argued that while the Commissioner allowed proportionate credit, the method of calculation was not specified. The appellant calculated the denied credit based on turnover. The merger between the appellant and BASFI had occurred before the show cause notice was issued, and the department was informed about the merger. The appellant contended that the merger itself should determine the credit transfer.

Issue 3: Impact of merger on credit transfer
The Tribunal noted that the merger had taken place before the proceedings were initiated, and the credit available in BASFI's books was transferred to the appellant. The department was informed about the merger, and Rule 10 of Cenvat Credit Rules, 2004 stipulated that credit in the books of account transfers when assets are taken over by another company. The Tribunal found the Revenue's actions unnecessary as the merger had already occurred, and the credit was technically transferred post-merger.

Issue 4: Interpretation of Cenvat Credit Rules, 2004
The Tribunal interpreted Rule 10 of Cenvat Credit Rules, 2004 to emphasize that credit transfers with the assets in case of a merger. The Tribunal highlighted that the credit available in BASFI's books had to be transferred to the appellant post-merger, even if the actual transfer occurred later. The Tribunal found no grounds for the Revenue to deny the credit post-merger.

Issue 5: Fairness and legality of denying credit post-merger
The Tribunal concluded that as the merger had taken place before the Order-in-Original, and the credit had become part of the appellant's account, it would be unfair and legally incorrect to deny the credit. The Tribunal noted that BASFI also paid excise duty, indicating a legitimate use of credit. Therefore, the Tribunal set aside the impugned order, allowing the appeal with consequential relief for the appellant.

This detailed analysis of the judgment highlights the issues surrounding the denial and allowance of credit, the impact of the merger on credit transfer, and the interpretation of relevant rules to ensure fairness and legality in the decision.