2022 (5) TMI 11 - AT - Service Tax

Transfer of CENVAT Credit lying unutilized - amalgamation of entities - utilization of unutilized credit by transferree company - transfer of CENVAT credit by transferee entities and availment of the same by the appellants were disputed by the Department on the ground that as per the requirement of Rule 10(3) ibid, the transfer can only be effective, when stock of inputs as such or in process or the capital goods are also transferred from the transferor units to the transferee unit - CENVAT credit of service tax paid on the input services, can be availed by the transferee unit upon sale/merger with the business units of the transferors or not? - HELD THAT - On a cogent reading of sub-rules (1) and (2) of Rule 10 ibid, it transpires that transfer and availment of unutilized cenvat credit is permissible under the statute, subject to fulfillment of the conditions that transfer of business must be on account of change of ownership or on account of sale, merger, amalgamation etc.; that there should be specific provision for transfer of liabilities of the business of service provider; that transfer is allowed only if stock of input as such or in process, or the capital goods are also transferred along with the business premises to the transferee company; and that the credit particulars are duly accounted in the books for satisfaction of the jurisdictional officer of Central Excise. Learned Commissioner appears to have erred in finding that transfer of cenvat credit on input services is permissible only on the amalgamation whereas in terms of Rule 10 (1) (2) of Cenvat Credit Rules, such a transfer is permissible on transfer of business on account of sale, merger, amalgamation, lease or transfer of business to a joint venture without specific provision for transfer of liabilities of such business. It is found that there is no provision in the statute that each one of the situations mentioned therein should be approved by the Hon‟ble High Court. It is also noted that in the column 5B in the ST-3 return, titled as cenvat credit taken and utilized', the appellants had reflected therein the credit particulars as -', which means that as a result of merger, only cenvat credit of service tax was available in the books of accounts of the transferor company and no input or capital goods credits were available with them. Thus, it cannot be said that the appellants had not duly reflected the credit particulars in their books of accounts for the satisfaction of the Department officers - the appellants had duly complied with the requirements of Rule 10 ibid for availment of the cenvat credit lying unutilized in the books of the transferor‟s company and thus, denial of the cenvat benefit by the original authority will not stand judicial scrutiny. There are no merits in the impugned order, insofar as it has confirmed the adjudged demands on the appellants - appeal allowed - decided in favor of appellant.

Summary

Issues:
Transfer of unutilized cenvat credit from acquired entities to appellants disputed by Department.

Analysis:
The appellants, engaged in the sale of IT products and services, acquired two companies in 2009 and 2010. The dispute arose regarding the transfer of unutilized cenvat credit from the acquired entities to the appellants. The Department contended that the transfer was not valid as per Rule 10(3) of the Cenvat Credit Rules, 2004, which requires the transfer of stock of inputs or capital goods along with the business premises. The original authority disallowed the cenvat credit and imposed penalties. The appellants challenged this order before the Tribunal.

The Advocate for the appellants argued that there were no restrictions in the cenvat statute preventing the transfer of service tax credit upon sale or merger. He cited various judgments to support the appellants' case. On the other hand, the Revenue supported the findings of the impugned order.

The Tribunal analyzed Rule 10 of the Cenvat Credit Rules, which allows the transfer of unutilized cenvat credit in case of business transfer due to sale, merger, etc., subject to certain conditions. The Tribunal noted that the appellants had duly recorded the transferred credit details in their returns and had complied with the requirements of the rule. It was observed that the appellants had accounted for the credit satisfactorily, and there was no evidence of non-compliance.

The Tribunal found that the original authority erred in disallowing the cenvat credit, as the appellants had met the conditions of Rule 10 for transfer and availment of the credit. The judgments cited by the Advocate further supported the appellants' position. Consequently, the impugned order confirming the demands on the appellants was set aside, and the appeal was allowed in favor of the appellants.

In conclusion, the Tribunal ruled in favor of the appellants, emphasizing that the transfer of unutilized cenvat credit from the acquired entities was valid under Rule 10 of the Cenvat Credit Rules, and the appellants had fulfilled all necessary requirements for availing the credit.