2018 (11) TMI 161 - AT - Central Excise

CENVAT Credit - transfer of credit by EOU - both units merged subsequently - revenue neutrality - Held that - As seen from the show cause notice, later both the units have merged to one unit, pursuant to debonding of the EOU. Taking note of these facts, it is very much clear that the situation is a revenue neutral one, even if the demand is confirmed, both the units which has been now merged into one unit of the same assessee, shall be availing the credit - demand requires to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Availing CENVAT credit on renting of immovable property for EOU and DTA units.
- Amendment in law regarding transfer of credit by EOU.
- Irregularly availed credit noticed during audit.
- Demand confirmation, interest, and penalties imposed.
- Argument for revenue-neutral situation due to units merging.
- Legal validity of demand confirmation.

Analysis:

The case involves the appellants engaged in manufacturing brakes, servo brakes, etc., availing CENVAT credit on inputs, capital goods, and input services for their EOU and DTA units. The dispute arises from the appellants continuing to avail input service credit on renting of immovable property for both units even after an amendment in the law in July 2014, which prohibited the transfer of credit by EOU. The audit revealed the irregularity, leading to a show cause notice proposing recovery of irregularly availed credit amounting to ?14,82,351/- along with interest and penalties.

The appellant argued that the situation was revenue-neutral as both units belonged to the same assessee, and any confirmed demand would ultimately benefit the same entity since the units had merged into one at the time of the notice. Citing a relevant case law, the appellant contended that there was no logic in confirming the demand given the merged unit's status. On the other hand, the respondent supported the findings in the impugned order, emphasizing the violation of amended provisions by the appellants and the necessity of confirming the demand due to the audit findings.

After hearing both sides, the Member (Judicial) analyzed the situation and agreed with the appellant's argument regarding the revenue-neutral nature of the case. Considering that both units had merged into one entity, the Member concluded that even if the demand was confirmed, the merged unit would still be eligible for the credit. Therefore, the Member set aside the demand and allowed the appeal with any consequential relief.

In conclusion, the judgment highlights the importance of compliance with amended legal provisions regarding the transfer of credit by EOU units and the significance of considering the revenue-neutral impact on merged units in such cases. The decision to set aside the demand underscores the equitable treatment of the merged unit under the circumstances of the case.