2019 (5) TMI 53 - AT - Service Tax

CENVAT Credit - transfer of one unit / part of Business - merger of company - transitional credit - Rule 10 of CCR, 2004 - denial of credit on the ground that the transfer of CENVAT credit under Rule 10 of the CCR, 2004 applies only if the entire business gets transferred or shifted - sufficient balance in the account of M/s Global in their ST-3 returns or not as on 31.03.2008 to justify the CENVAT credit availed by the appellant - HELD THAT - There is nothing in this Rule to indicate that the company will have to transfer entire business and cannot hive off one part of the business and sell it to another company as has been the assertion in the impugned order. In normal course of business, it is often the practice that one may decide to sell one of its businesses to another firm. In such cases, the business which has been sold gets de-merged from the parent company and merges with the buyer company. Rule 10(2) of CCR, 2004 squarely covers such cases also - there are no force in the argument in the show cause notice that the transfer of the benefits under Rule, 10 of the CCR, 2004 would apply only if the entire business is sold and does not apply if the seller company sells only one of this businesses (in this case, the BPO Division). Denial of credit on the ground that there is no sufficient balance in the account of M/s Global in their ST-3 returns or not as on 31.03.2008 to justify the CENVAT credit availed by the appellant - HELD THAT - The ST-3 returns filed by the appellant disclose the amount of CENVAT credit availed. The returns do not require invoice of the details of the CENVAT credit availed to be provided in order to the copies of the invoices to be submitted along with the returns - the appellant has fulfilled their obligations under the CENVAT Credit Rules, 2004. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Admissibility of CENVAT credit on transfer of business division.
2. Sufficiency of CENVAT balance in the transferring entity's records.

Issue 1: Admissibility of CENVAT credit on transfer of business division:
The case involved the appellant, a public limited company providing IT-enabled services, who acquired the BPO division of another company through a demerger and merger process approved by the High Courts. The appellant availed CENVAT credit, leading to a show cause notice alleging inadmissibility of the credit transfer. The Commissioner disallowed the credit, leading to the appeal. The appellant argued that the transfer was valid under Rule 10 of CCR, 2004, as the demerger and merger were approved by the High Courts, transferring all assets and liabilities, including CENVAT benefits. The Tribunal analyzed Rule 10(2) and the merger agreement, concluding that the transfer of CENVAT benefits is permissible even if only a part of the business is transferred, as long as all assets and liabilities are transferred, as in this case. The Tribunal found no merit in the argument that the entire business must be transferred for CENVAT credit transfer to be valid.

Issue 2: Sufficiency of CENVAT balance in the transferring entity's records:
The second issue revolved around the adequacy of CENVAT balance in the transferring entity's records to justify the credit availed by the appellant. The appellant clarified that the transferring entity did not utilize the CENVAT credit during the transfer period as the BPO division was intended for sale to the appellant, and the division itself did not require the credit due to its export-oriented services. The Tribunal accepted this explanation, noting that the appellant had fulfilled its obligations under the CENVAT Credit Rules, 2004. The Tribunal found that the appellant had correctly availed the CENVAT credit for the input services used to render output services. Consequently, the Tribunal set aside the impugned order disallowing the credit and allowed the appeal.

In conclusion, the Appellate Tribunal CESTAT Hyderabad ruled in favor of the appellant, allowing the appeal against the disallowance of CENVAT credit on the transfer of the BPO division. The Tribunal held that the transfer was valid under Rule 10 of CCR, 2004 and the merger agreement approved by the High Courts, and the appellant had correctly availed the CENVAT credit for the input services used. The impugned order disallowing the credit was set aside, and the appeal was allowed.