2017 (3) TMI 230 - AT - Central Excise

Cenvat credit - Penalty - Whether in the case of merger of two units the PLA of one unit can be transferred to the new unit that has came into existence - Held that - The amount lying in PLA can be considered as the cash held by the appellant company which definitely falls under the assets of the company. Viewing in this angle, when the assets of one unit merges with the other, the PLA necessarily has to follow - Appeal allowed - decided in favor of the assessee.

Summary

Issues:
Transfer of balance from Plant no. 2 to newly formed entity, demand confirmation, penalty imposition, transfer of PLA to new unit.

Analysis:
1. Transfer of Balance: The case involved the transfer of balances from Plant no. 2 to the newly formed entity after merger. The department alleged improper transfer of CENVAT Credit account and balance in PLA, leading to a show cause notice, demand confirmation, and penalty imposition. The original authority dropped the CENVAT Credit account issue but upheld the demand concerning the PLA balance transfer.

2. Appellant's Argument: The appellant contended that they had informed the department about the merger and submitted an undertaking. They argued that after merger, the PLA balance should be transferred to the new entity, becoming part of its assets. They cited specific provisions in the CENVAT Credit Rules for credit transfer and highlighted the necessity of transferring the PLA along with assets in a merger scenario.

3. Department's Position: The department, represented by the Ld. AR, maintained that there is no provision in the law for transferring the PLA balance. It was suggested that the appellant should have applied for a refund of the amount instead of seeking a transfer.

4. Judgment: The Member (Judicial) analyzed the issue of transferring PLA in a merger scenario. It was noted that assets and liabilities of both units merged into one entity. The Member agreed with the appellant's argument that the PLA balance should be considered as cash held by the company, falling under its assets. Referring to a similar case, the Member emphasized that the new unit, as the successor entity, is entitled to utilize the unutilized PLA balance. The judgment concluded that the PLA should be transferred to the new unit, and the demand related to PLA transfer was deemed unsustainable. The impugned order was set aside, and the appeal was allowed with consequential reliefs.

In conclusion, the judgment clarified the legal position regarding the transfer of PLA balances in the context of a merger, emphasizing the treatment of such balances as assets that should be transferred to the new entity. The decision provided a detailed analysis of relevant provisions and precedents, ultimately ruling in favor of the appellant and setting aside the demand related to the PLA transfer.