2013 (11) TMI 284 - AT - Central Excise

Transfer of cenvat credit Amalgamation of Companies Effective date of amalgamation - Held that - In the order itself it has been recorded that the amalgamation of the appellant with M/s Karamchand Appliances Pvt. Ltd. had been approved by Hon ble Delhi High Court w.e.f. 01/6/05 Relying upon CST, Delhi - I vs. ITC Hotels Ltd. 2011 (9) TMI 837 - CESTAT, NEWDELHI - the appellant company has been amalgamated with M/s Karamchand Appliances Pvt. Ltd. only from 01/6/05 and, as such, prior to 01/6/05 there was no question of transfer of any Cenvat credit balance lying in the Cenvat credit account of M/s Karamchand Appliances Pvt. Ltd. to the appellant Waiver of Pre-deposit Held that - The Cenvat credit available in the Cenvat credit account of M/s Karamchand Appliances Pvt. Ltd. as on 12/5/05 has obviously been utilised by M/s Karamchand Appliances only during May 2005 and, as on 01/6/05 there was no Cenvat credit balance - the department s case against the appellant is not sustainable - The requirement of pre-deposit of the Cenvat credit demand, interest and penalty against the appellant company waived for hearing of the appeal and recovery stayed till the disposal of the appeal stay granted.

Summary

Issues:
1. Transfer of Cenvat credit balance during amalgamation process.
2. Requirement of permission for credit transfer under Rule 10(3) of Cenvat Credit Rules.
3. Validity of the department's demand for Cenvat credit utilization.
4. Appeal against the Additional Commissioner's order.

Analysis:

Issue 1: Transfer of Cenvat credit balance during amalgamation process
The case involved the merger of two companies, where 50% shareholding of one company was transferred to another on different dates. The amalgamation was approved by the High Court, and the appellant argued that the effective date of amalgamation was crucial for determining the transfer of Cenvat credit balance. The Tribunal found that the amalgamation was effective only from the date approved by the High Court, and prior to that, there was no transfer of Cenvat credit balance. Therefore, the department's claim against the appellant was deemed unsustainable.

Issue 2: Requirement of permission for credit transfer under Rule 10(3) of Cenvat Credit Rules
The department contended that permission under Rule 10(3) of Cenvat Credit Rules was necessary for transferring and utilizing the Cenvat credit balance. However, the Tribunal ruled that since the effective date of amalgamation was after the utilization of the credit balance, the requirement for such permission did not apply in this case.

Issue 3: Validity of the department's demand for Cenvat credit utilization
The department demanded repayment of the Cenvat credit utilized by the appellant, alleging irregularity in the utilization process. The appellant argued that the utilization was valid as it occurred before the effective date of amalgamation. The Tribunal agreed with the appellant's argument, stating that the utilization of the credit balance by the old unit before the effective date of amalgamation did not warrant repayment by the appellant.

Issue 4: Appeal against the Additional Commissioner's order
The appellant had filed an appeal against the Additional Commissioner's order, which confirmed the demand for Cenvat credit repayment and imposed penalties. The Tribunal upheld the appellant's argument, waived the requirement for pre-deposit, and stayed the recovery of the demanded amount until the appeal's disposal. The stay application was allowed, providing relief to the appellant pending the appeal process.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the importance of the effective date of amalgamation in determining the transfer and utilization of Cenvat credit balance. The decision highlighted the legal significance of approval by the High Court in such merger cases and provided relief to the appellant by waiving the demand for credit repayment and penalties.