TRANSFER OF CREDIT

[Mr. M. GOVINDARAJAN]

         Rule 10 of CENVAT Credit Rules, 2004 ('Rules' for short) deals with the transfer of credit.   It provides that if a manufacturer of the final product shifts his factory to another site or the factory is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory to a joint venture with the specific provision for transfer of liabilities of such factory, then the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated factory.

         If a provider of output service shifts or transfers his business on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the business to a joint venture with the specific provision for transfer of liabilities of such business, then, the provider of output service shall be allowed to transfer the CENVAT credit lying unutilized in his account to such transferred, sold, merged, leased or amalgamated business.

         The transfer of CENVAT credit shall be allowed only if the stock of inputs as such or in process, or the capital goods is also transferred with the factory or business premises to the new site or ownership and the inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the Deputy Commissioner of Central Excise or as the case may be, the Assistant Commissioner of Central Excise.

CASE LAWS:

1. Commissioner of Central Excise V. SmithKline Beecham Consumer Health Care Ltd., - 2008 -TMI - 31683 - CESTAT, Chennai        

The inputs, on which credit has been availed, had been duly accounted for the satisfaction of the Commissioner having jurisdiction over the old unit and therefore the requirement of physical transfer of stock of inputs from the old unit to the new one stood fulfilled.   The department cannot any longer object to the utilization of the credit by the new unit.

2. Sunpack V. Commissioner of Central Excise, Pondicherry - 2008 -TMI - 2790 - CESTAT, CHENNAI

         The appellants had shifted their factory to a different location and had transferred the capital goods and inputs available in stock along with the credit available in their CENVAT account.   The inputs and capital goods were accounted for to the satisfaction of the departmental authorities as is seen from the order of the original authority.   The tribunal held that Rule 8 of CENVAT credit Rules does not require that the assessee can transfer credit corresponding only to the quantum of inputs transferred to a new factory.   The rule permits the assessee to transfer the available credit along with the inputs and capital goods in stock at a factory to the factory at a new location.   In the instant case, the finding of the authorities is to the effect that the appellants had satisfactorily accounted for the inputs and capital goods and they had transferred these materials along with the credit available.   This was in accordance with the law.   In the circumstances the impugned order is not sustainable and the same is set aside.

3. Hewlett Packard (I) Sales (P) Ltd., V. Commissioner of Central Excise, Bangalore - 2007 -TMI - 990 - CESTAT, BANGALORE

         Transfer of unutilized credit is involved in amalgamation of units.   Appellants informed the department about stopping the production activities in the Pondicherry Unit after amalgamation.   Duty on stock of raw materials and finished goods are lying as on 9.7.2004.   Appellants are entitled for transfer of credit under rule 10(1) CENVAT Credit Rules, 2004.

4. Hindustan Lever Ltd., V. Commissioner of Central Excise - 2007 -TMI - 2259 - CESTAT, MUMBAI

         The goods manufactured earlier remained the same even after change in management.   The appellants sought the permission from the authorities well in advance and after having waited for two years, they effected transfer of credit again informing the authorities.   The procedure in seeking permission was rightly followed.  There being no communication from the authorities concerned either granting or refusing the permission, it shall be deemed to have been granted after a lapse of reasonable length of time.

5. ECIE Impact Pvt. Ltd., V. Commissioner of Central Excise (Appeals) - 2006 -TMI - 409 - Appellate Tribunal, Bangalore

         The assessee completed their projects at Hyderabad and shifted entire machinery along with books of accounts to Bangalore Unit.   Both units are managed by same unit under common management.   The shifting of machinery on closure of work along with bag and baggage is to be considered as shifting of factory and not closure.   The transfer of unutilized credit is permissible.

6. Shree Rama Multi Tech Ltd., V. Commissioner of Central Excise - 2007 -TMI - 2154 - CESTAT, CHENNAI

         Transfer of credit will be allowed only if the stock of inputs such as, in process and the capital goods are transferred and they are accounted for to the satisfaction of the Commissioner.   But in cases where the inputs have been consumed in manufacture and no stock of inputs as such or in process at the time of shirting is available, transfer is allowed subject to proper accountal.

Discussions to this article

[RITESH BAHETI]

Dear Sir, i have read your coloum on transfer of credit. now i wish to discuss my one case with you and hope you will reply for the same. One of my assessee a partnership firm is registered under the provision of service tax. he is providing a service of servicing of motor vehicle. As per the provisions rule 6(3) of cenvat credit rules, (before amendment) an assesse has an option to maintain seperate books for availing 100% credit of cenvat or to avail 20% credit (20% of his liability) if he is not maintaining seperate books. My client has a not maintaining seperate books of taxable and taxfree service (I think the provision of repairs of vehicle is taxable and sale of vehicle is tax free in the case of my assessee) As he is not maintaining seperate books he has taken the credit of only 20% of his liability and the balance 80% is accumulated to the balance sheet as accumulated cenvat credit. as the amount of input services are much more than his actual service tax liability this accumulation reached to 15 lacs. Now w.e.f. 1.4.2008 the provisions cenvat credit rules 6(3) amended and provided for pro rate basis allowance of cenvat credit which result in allowability of 2% of cenvat credit against 20% as the turnover of taxable service is 2% as compared to tax free service. Mean while the partnership firm is convereted into a Pvt Ltd company w.e.f. 1.10.2008 along with all the liability and assets. now i whether the accumulated balance of 15 Lac will be allowed under the provisions of transfer to credit or not? secondly whether can i utilised/take the accumulated balance of cenvat credit @ 100% as the provision of restriction of 20% is removed w.e.f. 1.4.2008. as with effect from 1.4.2008 we are maintaining seperate books of accounts and taking credit @ 100% Thanks

[Anil Bahl]

Dear Sir, Let us take a case where the assessee is a company engaged in providing of services. The company has obtained separate service tax registrations for various divisions of its business located all over the country. The assessee uses capital goods, inputs and input services that are used for providing output services. There is balance of CENVAT credit lying in these service tax registrations. The assessee wants to merge these service tac registrations in to four centralised servic etax registrations across India. Under such circumstances would it be permissible to avail the balance of CENVAT credit of all individual registrations in the regional specific centralised registrations (say North, East, South and West). Would it permissible to avail the CENVAT credit of 50% on capital goods that would become available on 1st April 2009. It appears that the rules are not very clear to address the above situation. Would appreciate if you can share your thoughts on the same and also share if any judgments support such dynamic situations arising in today's modern business environment. Warm Regards

[Sameer S.Palaskar]

Sir, I would like to discuss one issue regarding the Transfer of cenvat Credit. The assessee(100% EOU) was engaged in manufacturing activity having status of 100% EOU, after partial de-bonding and merge with parent unit (DTA Unit) they field refund claim for accumulated balance of cenvat credit and subsequently got the sanction for refund claim from Dept After making necessary debit in cenvat account still some lakhs rupees balance are there for that they have field application for transfer of Cenvat credit under Rule -10. It almost 6 month has already past but they are not geeting the sanction form the department. It appears that rule is not clear for above situation, you are requested to put you valuable opinion with some case law in this matter. With regards,

[Sandhya Srinivas]

Does an regular tax invoice needs to be prepared at the time of shifting of factory premises for availing the transfer of cenvat credit under Rule 10 for shifting raw materials, W.I.P and FG apart from Capital goods?. Since the company is shifting totally to a new location, is it correct for a company to raise an invoice on itself although with a different address. The new location has a Excise registeration #. We were told that after obtaining a new # it is advisable to cancel the one we had for the previous location. Please shed light on the documentation that needs to be followed for shifting the materials with Excise for carryforward of cenvat credit. Thanks