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2019 (11) TMI 299 - AT - Central ExciseCENVAT Credit - transfer of credits from one unit to another - inputs meant for use in the manufacture of these computers - IBMI was amalgamated with IBM Global Service India Pvt. Ltd. (IGSI) as per the scheme of amalgamation - unconditional exemption notification No.23/2004-CE (as amended) - it is alleged that the availment of credit attributable to the inputs lying in stock as such or contained in the finished goods / semi-finished goods when the computers became exempt w.e.f. 09.07.2004 is irregular - transitional credit - Rule 11 (3) of CCR 2004 - whether they are entitled to cenvat credit taken by the predecessor unit under Rule 10 CCR 2004 or such transfer is invalid in view of Rule 10 (3) of CCR 2004? Reversal of CENVAT Credit - inputs lying unutilized in the cenvat credit account or contained in the inputs lying in stock or final products lying in stock on the day when the final products becomes fully exempt - Rule 11 (3) of CCR 2004 - HELD THAT - Rule 11 (3) of CCR 2004 specifically provides for such a reversal. This sub rule was inserted from 1.3.2007. There is nothing on record for us to believe that this sub rule had retrospective application. In the absence of any specific provision, fiscal statutes are only presumed to have prospective application - in respect of exemptions based on the value or quantity of clearances in a financial year sub rule (2) of Rule 11 had always provided for such reversal. The present case does not pertain to exemption based on value of clearances - the demand for reversal of the cenvat credit is without any authority of law applicable during the relevant period. After the introduction of Rule 11 (3) by Notification No.10/2007 dt 1.3.2007 the Tax Research Unit of CBEC has issued Circular No.334/1/2007-TRU dt. 28.2.2007 clarifying that it will come into effect immediately. The letter does not suggest that Rule 11 (3) was supposed to have retrospective effect. Therefore, we find that it has never been the intention to give retrospective application to Rule 11 (3). In consequence, demand on this count along with interest and penalties on this account needs to be set aside. Demand on account of transfer of cenvat credit - HELD THAT - It is clear from the details narrated in the SCN and the impugned order that all assets and liabilities of the previous entity have been passed on to the successor entity. Under these circumstances, the allegation that there is no evidence to satisfy the Asst. Commissioner or Deputy Commissioner of Central Excise that stock of inputs as such or in process or the capital goods have also been transferred to the successor entity is, at best, far fetched. The satisfaction of AC or DC or otherwise should also be based on same cogent reasons - there are no reasons or evidence because of which the Asst. Commissioner or Deputy Commissioner has come to the conclusion that the inputs or capital gods have not been transferred to the successor unit when the entire business itself has been transferred at the very same premises to the successor entity - Demand set aside. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Applicability of Rule 11(3) of CCR 2004 for reversal of CENVAT credit prior to its insertion on 1.3.2007. 2. Entitlement to CENVAT credit transfer under Rule 10 of CCR 2004 during amalgamation. Issue-wise Detailed Analysis: 1. Applicability of Rule 11(3) of CCR 2004 for Reversal of CENVAT Credit Prior to Its Insertion on 1.3.2007: The first issue revolves around whether Rule 11(3) of the CENVAT Credit Rules (CCR) 2004, which mandates the reversal of CENVAT credit if the final product becomes absolutely exempt, applies retrospectively to periods before its insertion on 1.3.2007. The appellant argued that prior to 1.3.2007, Rule 11 only had sub-rules (1) and (2), which did not require reversal of CENVAT credit for general unconditional exemptions. Rule 11(3) was inserted on 1.3.2007 and extended the requirement of reversal to cases where the final product became absolutely exempt. The appellant contended that there was no provision or explanation indicating that Rule 11(3) had retrospective application. Therefore, the rule should only have prospective application. The Tribunal agreed with the appellant, noting that fiscal statutes are presumed to have prospective application unless explicitly stated otherwise. The Tribunal referenced the case of TAFE Ltd. Vs CCE Madurai-II, where the Hon’ble High Court of Madras ruled that Rule 11(3) did not have retrospective application. This decision was upheld by the Hon’ble Supreme Court. Consequently, the Tribunal found that the demand for reversal of CENVAT credit based on Rule 11(3) was without legal authority applicable during the relevant period and set aside the demand along with interest and penalties. 2. Entitlement to CENVAT Credit Transfer Under Rule 10 of CCR 2004 During Amalgamation: The second issue concerned whether the appellant was entitled to transfer CENVAT credit taken by the predecessor unit under Rule 10 of CCR 2004 during the amalgamation. The appellant argued that Rule 10 of CCR 2004 permits the transfer of CENVAT credit in cases of sale, merger, amalgamation, lease, or transfer of a factory or business. Rule 10(3) states that such transfer is allowed only if the inputs and capital goods are transferred along with the factory or business and duly accounted for to the satisfaction of the Deputy Commissioner or Assistant Commissioner of Central Excise. The appellant contended that the entire business, including all assets and liabilities, was transferred to the new entity, and there was no evidence or allegation of diversion or sale of inputs or capital goods outside the business. The Tribunal found that the satisfaction of the Deputy Commissioner or Assistant Commissioner should be based on cogent reasons. In this case, there was no evidence to suggest that the inputs or capital goods were not transferred to the successor entity when the entire business was transferred at the same premises. The Tribunal concluded that the demand for disallowance of CENVAT credit on this account was far-fetched and must fail. Conclusion: The appeal was allowed, and the impugned order was set aside with consequential benefits. The Tribunal held that Rule 11(3) of CCR 2004 did not have retrospective application and that the appellant was entitled to transfer CENVAT credit under Rule 10 of CCR 2004 during the amalgamation.
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