2017 (5) TMI 604 - AT - Central Excise

Transfer of Cenvat credit from one registered unit to another - units merged and credit accounts of two units also merged, where credit balance of one unit before merger was utilised for payment of duty on all finished products - Revenue entertained the view that the cenvat credit in the account of Excel Fibre Division at the time of merger would lapse and the same could not be utilized for payment of duty by the merged entity - Held that - there is no doubt that the common registration granted by the department covers the premises encompassing both SFD or EFD. The Cenvat Credit Rules contemplate maintenance of a Common Cenvat account for the factory as a whole. When the factory covers both SFD as well as EFD, there can be no objection to maintenance of a common Cenvat account and making payment of Excise Duty for any final product manufactured in the factory. Once the two divisions have a common registration certificate as a single factory, the Cenvat credit accounts, which were maintained separately will need to be merged. After such an event there can be no objection to the SFD making use of the accumulated credit under EFD prior to issue of common Registration certificate - appeal allowed - decided in favor of appellant.

Issues involved:
1. Transfer of Cenvat credit between two divisions of a company after common registration.
2. Interpretation of Rule 10 of the Cenvat Credit Rules 2004 regarding lapsing of Cenvat credit.
3. Application of the definition of "Factory" under the Central Excise Act to determine common registration.
4. Consideration of case laws and judicial precedents in deciding the utilization of Cenvat credit.

Issue 1: Transfer of Cenvat credit between two divisions after common registration
The appellant had two divisions, each with separate Central Excise registrations and Cenvat credit accounts. Upon obtaining a single registration for both divisions, the appellant merged the Cenvat credit accounts. The department contended that this merger constituted a transfer of credit, governed by Rule 10 of the Cenvat Credit Rules 2004, leading to the lapse of the credit. The Commissioner ordered recovery of the Cenvat credit against the appellant, citing non-applicability of Rule 10 exceptions. The appellant argued that since the divisions were within the same premises and granted common registration, the accumulated credit could be utilized for duty payment. The Tribunal noted the common registration encompassing both divisions and allowed the appeal, emphasizing the permissibility of a common Cenvat account for the factory post-merger.

Issue 2: Interpretation of Rule 10 of the Cenvat Credit Rules
Rule 10 of the Cenvat Credit Rules addresses scenarios like factory relocation or ownership transfer, not directly covering intra-company credit transfers post-common registration. The Tribunal distinguished the case from precedents where separate factory registrations were sought to be treated as one entity, asserting that the Rule's application was inapplicable to the current context. The Tribunal's decision was influenced by the Madras High Court ruling, which supported the merger of credit accounts post-common registration, aligning with the appellant's contention.

Issue 3: Application of the "Factory" definition under the Central Excise Act
The definition of "Factory" under Section 2(e) includes premises where excisable goods are manufactured, indicating that the common registration for both divisions covering the premises as a whole was valid. The Tribunal emphasized that the Cenvat Credit Rules allow for a common Cenvat account for the entire factory, enabling duty payment for any final product manufactured within the factory premises. This interpretation supported the appellant's position regarding the utilization of accumulated credit post-merger.

Issue 4: Consideration of case laws and judicial precedents
The Tribunal referenced the Madras High Court judgment involving a similar scenario of two units under the same management within the same premises. The Madras High Court decision supported the merger of credit accounts upon obtaining a single registration, emphasizing the interconnected nature of the units. By applying this precedent, the Tribunal concluded that once common registration is granted, the separate Cenvat credit accounts should be merged, allowing for the utilization of accumulated credit by the appellant, thereby setting aside the impugned order and allowing the appeal.

The Tribunal's detailed analysis and reliance on legal provisions, precedents, and the definition of "Factory" under the Central Excise Act resulted in the favorable decision for the appellant, highlighting the permissibility of merging Cenvat credit accounts post-common registration and the legitimate use of accumulated credit for duty payment within the factory premises.

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