Case Law Details
Commissioner of Customs Vs Matrix Laboratories Ltd. (CESTAT Hyderabad)
CESTAT Hyderabad held that CENVAT Credit in the books of the transferor is duly available to the transferee on account of change of ownership as per Rule 10 of the Cenvat Credit Rules.
Facts- The issue in the present appeal by Revenue is whether the appellant is rightly entitled to cenvat credit which was available in the books of accounts of one Vivin Laboratories Private Ltd., as they have taken over the plant and machinery of the said company on outright sale basis, including transfer of land.
Conclusion- Held that the Respondent is the successor owner of the factory of Vivin Laboratories, with its assets and liabilities (which is nil on date of transfer), due to change of ownership on account of sale. We also hold, Rule 3 of CCR is not applicable in the facts of the present case, as Rule 3 applies in case of ‘removal’ of capital goods. Here there is no removal, as the capital goods remained in the same factory/premises, and there is only change of ownership. Thus, we hold that the respondent-assessee is entitled to take transfer of Cenvat Credit available in the books of the transferor – Vivin Labs, as per Rule 10 of Cenvat Credit Rules.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
The issue in this appeal by Revenue is whether the appellant is rightly entitled to CENVAT credit which was available in the books of accounts of one Vivin Laboratories Private Ltd., as they have taken over the plant and machinery of the said company on outright sale basis, including transfer of land.
2. The brief facts are that M/S Matrix Laboratories Limited (Now M/s Mylan Laboratories limited) is a manufacturer of bulk drugs and drug intermediates falling under Chapter 29 of the Central Excise Tariff act, 1985. The Respondent is registered with Central Excise bearing Registration No.AADCM3491MEM018 w.e.f. 27.01.2010.
3. The Respondent acquired the factory premises (land) of M/s Vivin Laboratories Pvt Ltd., (Vivin Laboratories) vide sale deed dated 30.12.2009.
4. The Respondent informed the Assistant Commissioner of Central Excise about the purchase and acquisition of the entire factory of Vivin Laboratories vide letter dated 18.03.2010 and had requested for transfer of the closing balance of Cenvat Credit of Rs. Rs.1,93,75,547/- in RG 23A and 23 C Part II of Vivin Laboratories Pvt Ltd., in terms of Rule 10 of Cenvat Credit Rules, 2004.
5. The Respondent also intimated the Assistant Commissioner that entire Plant & Machinery was sold by Vivin Laboratories Pvt Ltd., to them vide their letter dated 12.01.2011 along with tax invoice to that effect.
6. The Assistant Commissioner obtained a verification report from the jurisdictional Range Officer (JRO). JRO also furnished a copy of the sale deed as proof of “change in ownership”.
7. The table below would summarize the event along with the date:
|
DATE |
DESCRIPTION |
| 04.12.2009 | The Respondent and Vivin Laboratories entered into a purchase implementation Agreement for purchase of the assets of Vivan Laboratories and other rights exercisable by third parties along with ownership and risks in respect of the assets acquired. |
| 30.12.2009 | The Respondent and Vivin Laboratories entered into a sale deed for acquisition of Vivin Laboratories factory premises (land). |
| The plant & Machinery and capital goods of Vivin Laboratories were sold simultaneously to the Respondent vide tax invoices | |
| 18.03.2010 | Respondent addressed a letter to the Assistant Commissioner for the transfer of closing balance of CENVAT credit enclosing a copy of RG 23A part II, RG 23C part II and ER-1 for the month of January 2010. |
| 29.03.2010 received on 18.06.2010 | Respondent addressed a letter to the Assistant Commissioner informing that no raw-material stock was available at the time of taking over and that the entire capital goods of Vivin were acquired by them enclosing a copy of the Sale Deed and Letter of Undertaking |
| 21.07.2010 | The Range officer vide letter O.C. No. 803/2010 stated that he had visited the factory and relevant records and recommended permitting transfer of the Credit amounting to Rs. 1,83,18,042/- for the following reasons:
|
| 20.09.2010 | Superintendent issued a letter to the Respondent, requiring them to furnish information/ documents regarding the nature of acquisition, agreement for transfer of liabilities, details of liabilities of the transferee unit and copy of agreement. |
| 07.01.2011 | The Assistant Commissioner issued a letter to the Respondent requiring them to submit any document showing transfer of the capital goods and inputs of Vivin Laboratories at the time of taking over. |
| 12.01.2011 | The Respondent submitted reply letter to the Assistant Commissioner, produced copies of invoices showing the sale of plant and machinery, electrical goods, lab equipment, etc. |
| 17.01.2011 | The Assistant Commissioner issued a letter to the Respondent requesting to furnish copies of the inventory ledger for the month of December 2009 of Vivin Laboratories showing the details of the stock and capital goods etc., in their possession at the time of transfer to the Respondent. |
| 11.03.2011 | The Assistant Commissioner denied the transfer of CENVAT credit vide letter No. V/30/15/2009 |
| 01.04.2011 | The Respondent availed cenvatcredit of Rs.1,83,70,133/- lying in the closing balance of Vivan Laboratories. |
| 10.05.2011 | The Respondent filed an Appeal against the letter of the Assistant Commissioner dated 11.03.2011 challenging the rejection of transfer of credit under Rule 10 of CCR, 2004. |
| 29.08.2011 | The Commissioner (Appeals) allowed the appeal of the Respondent vide the impugned order. |
| 25.10.2011 | The Respondent submitted a letter to Assistant Commissioner pursuant to impugned OIA, submitting invoice copies, ER-1 Returns and purchase implementation agreement for quantification of cenvat credit as per the directions of the learned Commissioner (Appeals). |
| 04.01.2012 | The Commissioner of Central Excise, Visakhapatnam vide review order No. 02/2012 (Coc), directed the Assistant Commissioner of Central Excise, Division V, Visakhapatnam, to prefer an appeal against the impugned order before the Hon’ble CESTAT, Bangalore. |
| 10.02.2012 (protective SCN) | A show cause notice bearing C. No. V/15/09(C.E)/2012-ADJ (Annexure-4) was issued to the Respondent proposing recovery of Cenvat Credit of Rs.1,83,70,133/- under Rule 14 of the CCR, 2004 along with interest and penalty |
| 08.03.2012 | The Respondent submitted their reply to the SCN dated 10.02.2012. |
8. The Assistant Commissioner had rejected the transfer of Credit vide order dated 11.03.2011 on the following grounds:
(a) The factory premises of Vivin Laboratories was transferred to Matrix through sale deed dt 30.12.2009 which transfers only the landed property and others but not the plant and machinery comprising the capital goods.
(b) Further, no specific provision was made in the sale deed for transferring the liabilities along with assets.
(c) Co-relation could not be made to establish the items mentioned with the entries mentioned in RG23C Part II extracts of Vivin Laboratories.
(d) Further, the goods were transferred through Sale from Vivin Laboratories to Matrix against which sales tax was paid. Therefore, it has to be construed that the goods were not in possession of Vivin Laboratories.
(e) Hence, permitting transfer under Rule 10 of Cenvat Credit Rules, 2004 is not permissible.
9. The Learned Commissioner (Appeals) vide the impugned OIA No. 26/2011 (V-II), dated 29.08.2011 allowed the appeal with the following observations:
(a) The Respondent requested the JAC for registration of premises taken over from Vivin, to issue fresh registration and the same was granted on 27.01.2010.
(b) Vide letter dated 18.03.2010, the Respondent has requested for transfer of Cenvat Credit on inputs and Capital Goods and the Range Officer has recommended for the same vide report dated 27.01.2010.
(c) The purchase implementation Agreement dated 04.12.2009 submitted by Matrix it was clear that Vivin transferred full legal and beneficial title and ownership of all assets to Matrix. In terms of Sale deed dated 30.12.2009, sale of land was executed and the sale of Plant, Machinery etc was done on the strength of invoice dated 30.12.2009. Therefore, the factory remained the same (in the same premises) and there is merely change in the ownership as a result of sale and the business is continued by the assessee in the same premises.
(d) No documents have been prescribed in Rule 10(1) of CCR, 2004 on the strength of which sale, merger, amalgamation etc., should take place. Hence, it is found that the sale of the complete assets and both immovable and movable properties is complete on the strength of these documents.
(d) In terms of Rule 10(3) of CCR, 2004 Cenvat Credit shall be allowed if the stock of inputs as such or in process, or the capital goods is also transferred along with the factory. In this case, the premises remains the same and the line of manufacturing activity remaining the same, except for transfer of ownership.
(e) There were no inputs, inputs in process lying in stock at the time of transfer. Thus, a combined reading of Rule 10(1) and (3) of CCR reveal that the transfer of accumulated Cenvat Credit on inputs is automatic. With regards to Capital Goods, the jurisdictional officer has already furnished a report recommending transfer. If the JAC is not satisfied with the report, he should have visited the factory himself to satisfy himself.
(f) Reliance is placed on the following case laws:
(i) Flex Art Foil Pvt Ltd CCE, Daman [2010(260) ELT 261(Tri-Ahmd)]
(ii) CCE, Pune-II Vs Dow Agro Sciences India (P) Ltd [2010(261) ELT 225 (Tri-Mum)]
(g) The assessee is legally entitled to avail cenvat credit which was transferred to them on account of sale of land, plant and machinery and capital goods in terms of Rule 10 of CCR, 2004 on the strength of documents produced by them.
10. Being aggrieved the Revenue is in appeal against the Order of Commissioner (Appeals). Learned AR for Revenue Shri V R Pavan Kumar interalia urges as follows:
10.1 The Assistant Commissioner (AC), had called for a report from Range Officer, and on receipt of report, the Division Office, further called for the documents with regard to change in ownership. Consequently, the Range Officer, forwarded a copy of Sale Deed dated 30.12.2009, entered between M/s Matrix Labs and M/s Vivin Labs., which only deals in respect of Land &Buildings. The Sale Deed clearly states that “NO PLANT AND MACHINERY IS BEING TRANSFERRED THROUGH THE SALE DEED”.
10.2 M/s Matrix, were requested to furnish the documents showing transfer of Capital goods and Inputs from M/s Vivin Labs. In response, M/s Matrix vide letter dated 12.01.2011, produced copies of Invoices bearing No.100/30.12.2009 and 101/30.12.2009, showing the Sale of Plant and Machinery, Electrical Goods, Lab Equipment etc for an amount of Rs.40,86,42,174/- and Rs.2,42,61,712/-.
After due process, the Assistant Commissioner, rejected the claim of M/s Matrix, for transfer of Cenvat Credit, vide Order-In-Original C. No. V/30/15/2009-Tech, dated 11.03.2011, as the required documents and explanation were not provided.
10.3 In this regard, it is pertinent to note the relevant provisions of Law viz Rule 10 of Cenvat Credit Rules, 2004:
“RULE 10. Transfer of CENVAT credit. —(1) If a manufacturer of the final products 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.
(2) 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 accounts to such transferred, sold, merged, leased or amalgamated business.
(3) The transfer of the CENVAT credit under sub-rules (1) and (2) shall be allowed only if the stock of inputs as such or in process, or the capital goods is also transferred along 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.
(4) Subject to the provisions contained in sub-rule (3), the transfer of the CENVAT Credit shall be allowed within a period of three months from the date of receipt of application by the Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be :
Provided that the period specified in this sub-rule may, on sufficient cause being shown and reasons to be recorded in writing, be extended by the Principal Commissioner of Central Excise or Commissioner of Central Excise, as the case may be, for a further period not exceeding six months.”
10.4 The provisions of Law, clearly evidences that if a factory is transferred on account of change in ownership,the following conditions have to be met for transfer of Cenvat credit;
(i) it should contain specific provision for transfer of liabilities of such factory, then, the manufacturer shall be allowed to transfer the CENVAT credit lying unutilised in his accounts to such transferred factory.
(ii) Further, the said Cenvat Credit can only be allowed to be transferred, if the stock of inputs, as such or in process, or the capital goods are also transferred along with the factory or business premises to the new ownership and
(iii) inputs and capital goods on which credit has been availed of are duly accounted for to the satisfaction of the Deputy/Assistant Commissioner.
10.5 As the conditions required appeared to be not met, the Assistant Commissioner, has rejected the permission to transfer of Cenvat credit to the new ownership vide Order dated 11.03.2011. M/s Matrix went in for appeal to the Commissioner (Appeals) and even before the Commissioner (Appeals) could decide the issue, M/s Matrix have taken the Cenvat Credit of Rs.1,83,70,133/- into their account during March, 2011.
11. The impugned Order-In-Appeal No.26/2011, dated 29.08.11, needs to be set aside on the following grounds:
11.1 This fact of M/s Matrix taking Cenvat Credit on its own, was brought to the notice of Commissioner (Appeals), vide Asst. Commissioner letter dated 15.07.2011, which in effect rendered the M/s Matrix appeal before Commissioner (Appeals) infructuous. However, Commissioner (Appeals) without considering the factual position has passed Order-In-Appeal (OIA) No.26/2011, dt.29.08.2011, in M/s Matrix favour. Hence, the impugned Commissioner (Appeals) Order-In-Appeal is liable to be set aside on this count alone.
11.2 M/s Matrix have not submitted any document of indicate/nor any evidence prescribing specific provision for transfer of liabilities of such factory. In the absence of such a specific provision, the transfer of Cenvat credit to M/s Matrix from M/s Vivin Labs is not tenable and erroneous in Law.
11.3 M/s Matrix, could not produce any document, to correlate the items mentioned in the annexures enclosed to the Invoices against which the plant and machinery was sold, with entries made in RG 23 C Part II extracts (Capital Goods Register) of M/s Vivin Labs, furnished by M/s Matrix, as recorded by the Assistant Commissioner in the Order-In-Original dated 11.03.2011.
11.4 In fact, the Sale Deed dt.30.12.2009, contains specific clauses that the transfer of the factory is without any encumbrances, attachments, charges, claims and demands and the Seller i.e. Vivin Labs shall Indemnify and Keep Indemnified the buyer Matrix against all claims, losses, liabilities, costs, damages or actions or proceedings
11.5 The Commissioner (Appeals) has remanded the matter for quantification of without any scope for verification of facts. The eligibility for transfer of Cenvat credit could not be completed by the Original authority i.e. Assistant Commissioner, on account of non-submission of documents including “Project Implementation Agreement”, which was only submitted before the Commissioner (Appeals).
11.6 The contention of M/s Matrix, the respondents herein, that transfer of Cenvat credit should have been allowed on the basis of Range Officer report dt.30.12.2009, which was called for by the Assistant Commissioner, is erroneous, as the subject Sale Deed dt.30.12.2009 and Invoices No.100 & 101, both dt.30.12.2009, were not examined by Range Officer, at the time of sending the report. The said Sale Deed and Invoices, were made available to the Range Officer subsequently by M/s Matrix, after submission of Range Officer report, as such transfer of Cenvat credit could not be allowed solely on the basis of Range Officer Report, when the Proper Officer for Transfer to Cenvat Credit to new ownership of a factory, is the Assistant Commissioner.
11.7 Another important factor is the goods in question which are said to have been transferred, have in fact been sold under invoices by M/s Vivin Labs to M/s Matrix, on payment of Sales Tax, as such the said transaction, is governed by provisions of Rule 3 of CCR, 2004 and not governed by provisions of rule 10 of CCR, 2004.
11.8 The Commissioner (Appeals) findings that the transfer of Cenvat credit to the new ownership is automatic, is an erroneous reading of provisions of law. The transfer of Cenvat credit to new ownership is definitely subject to conditions stipulated in the Rule 10 of CCR, 2004, including specific provision for transfer of liabilities, specific condition that inputs and capital goods should be transferred and that required documents should be submitted to the Assistant Commissioner concerned. So, the reading of Commissioner (Appeals) that transfer of Cenvat credit is automatic is untenable in law.
12. In this regard, the Department places reliance of the following decisions:
(i) Hon’ble Tribunal in the case of Sunpack vs CCE, Pondicherry, reported in [2008 (223) E.L.T.(95) Tri -Chennai], held as follows;
“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 balance available. This was in accordance with law.” (para 6).
(ii) Hon’ble Supreme Court of India Larger Bench in the case of M/s Dharmendra Textile Processors, reported in [2008 92310 E.L.T.3(S.C.)], held as follows;
“13. It is a well-settled principle in law that the court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent…… ”
14. ………… The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner (1846) 6 MOO PC 1, the courts cannot aid the legislature’s defective phrasing of an Act, they cannot add or mend, and by construction make up deficiencies which are left there. (See State of Gujarat v. DilipbhaiNathjibhai Patel – 1998 (3) SCC 234). It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. [See Stock v. Frank Jones (Tipton) Ltd. – 1978 (1) ALL ER 948.] Rules of interpretation do not permit the courts to do so, unless the provision as it stands is meaningless or of doubtful meaning. The courts are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself. (Per Lord Loreburn, L.C. in Vickers Sons”)”
(iii) The Hon’ble Supreme Court of India, in the case of Shanker Raju vs UOI, reported in [2011 (271) E.L.T. 492 (S.C.)], held as follows;
“It is apt to remember the words of Lord Salmon in IRC v. Ross Minister Ltd. (1979) 52 TC 160 (HL). It is stated, “however, much the courts may deprecate an Act, they must apply it. It is not possible by torturing its language or by any other means to construe it so as to give it a meaning which Parliament clearly intend it to bear.” We may also add that where the Legislature clearly declares its intent in the scheme of a language of Statute, it is the duty of the Court to give full effect to the same without scanning its wisdom or policy and without engrafting, adding or implying anything which is not congenial to or consistent with such express intent of legislature. Hardship or inconvenience cannot alter the meaning employed by the Legislature if such meaning is clear on the face of the Statute. If the Statutory provisions do not go far enough to relieve the hardship of the member, the remedy lies with the Legislature and not in the hands of the Court.” (para 26)
13. Opposing the appeal Counsel for the Respondent-assessee interalia urges that prior permission for transfer of unutilized credit is not mandatory in terms of Rule 10 of CCR. There is no force in the ground of Revenue that assessee has taken credit without waiting for permission from the Department, in view of the provisions of Rule 10 of CCR.
13.1 A plain reading of Rule 10(1) of the CCR (quoted hereinbefore), it is clearly provided that if a manufacturer of the final products shifts his factory to another site, the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred factory. Further, in terms of Rule 10(3), ibid, the transfer of cenvat credit shall be allowed in case of the inputs or the capital goods is also transferred along with the factory premises to the new ownership and the inputs, or capital goods, on which credit has been availed of are duly accounted for.
13.2 It is humbly submitted that there is no specific stipulation contained in Rule 10 that prior permission is required from the statutory authorities for transferring the Cenvat credit as a result of amalgamation/merger. In this regard, the Respondent places reliance on the following decisions:
(i) C. Johnson Products (P) Ltd. vs. CCE, Chandigarh, 2016 (337) E.L.T. 422 (Tri. – Del.)
(ii) Sree Ram Industries vs. CCE & ST, Bangalore-V, 2019 (365) E.L.T. 616 (Tri. – Bang.)
(iii) Hewlett Packard (I) Sales (P) Ltd. vs. Commissioner of Customs, Bangalore, 2007 (211) E.L.T. 263 (Tri. – Bang.) which was affirmed by the Hon’ble High Court of Karnataka in 2012 (279) E.L.T. 203 (Kar.)
(iv) Solaris Bio-chemicals Ltd. v. CCE, Vadodara – 2005 (179) E.L.T. 216 (Tri. – Mumbai)
(v) Om Glass Works Pvt Ltd. vs. CCE, Kanpur, 2012 (279) E.L.T. 313 (Tri. – Del.)
(vi) Kiran PondyChems Ltd. Vs CCE, 2009 (239) ELT 192 (Tri. – Chennai)
(vii) Capital Transformers Pvt Ltd Vs CCE, Alwar [2019(1) TMI 616-Cestat New Delhi].
Amendment to Rule 10 of the CCR
13.3 It is pertinent to note that an amendment was made to Rule 10 of the CCR in terms of CENVAT Credit (Amendment) Rules, 2017 vide the Notification No.4/2017-CE (NT) w.e.f. 02.02.2017 and sub-Rule (4) was inserted in Rule 10 as under:
(4) Subject to the provisions contained in sub-rule (3), the transfer of the CENVAT Credit shall be allowed within a period of three months from the date of receipt of application by the Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be:
Provided that the period specified in this sub-rule may, on sufficient cause being shown and reasons to be recorded in writing, be extended by the Principal Commissioner of Central Excise or Commissioner of Central Excise, as the case may be, for a further period not exceeding six months.”
13.4 Therefore, only pursuant to the amendment to Rule 10 of CCR w.e.f. 02.02.2017, it was provided that an application for transfer of cenvat credit was required to be made to the Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, wherein the cenvat credit was required to be allowed within a period of 3 months from the date of the application.
13.5 However, in the present case, during the relevant period, there was no such condition or provision under Rule 10 of the CCR to seek prior permission for transferring the cenvat credit available at the time of transfer of premises to the Respondent.
The Respondent is eligible for transfer of unutilized credit in terms of Rule 10 of CCR.
14. It has been contended by the revenue that Rule 10(1) and Rule 10(3) of CCR are to be complied with, where under transfer of credit is only permissible if the stock of inputs or capital goods is also transferred on account of sale. That rejection of transfer of credit in the present case was valid since the sale deed has established that no plant and machinery was transferred and there was no transfer of liabilities.
15. In this regard, the conditions prescribed under Rule 10 of the CCR for transfer of credit are as below:
(a) The factory is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease.
(b) There is a transfer of liabilities of such factory.
(c) CENVAT credit is lying unutilized in the accounts to such transferred, sold, merged, leased or amalgamated factory.
(d) The stock of inputs as such or in process, or the capital goods is also transferred along with the factory 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.
16. It is further submitted that the premises of Vivin Laboratories was transferred pursuant to sale deed dated 30.12.2009 and even though plant and Machinery were not transferred under the sale deed, the same were sold through invoice nos. 100 and 101 dated 30.12.2009 and the annexure detailing the breakup of plant and machinery and assets are also available. Therefore, the ownership of the factory was transferred by way of sale deed dated 30.12.2009 and on the same day, the capital goods were also transferred through the invoices.
17. It is pertinent to note that under Rule 10 of CCR, there is no requirement that the premises and the capital goods are to be transferred through a common document. There is no bar on transfer of premises and the capital goods by separate instruments.
Correlation is not a mandatory requirement.
18. The revenue has contended that without co-relation of value of capital goods with the invoices, credit was rightly denied. It is humbly submitted that the Respondent received all the capital goods available at the factory premises on the date of the transfer, details of which are provided in the annexures to the invoices.
19. It is highly irregular of the revenue to reject transfer of credit on the ground that the capital goods of a higher value are transfer and therefore it is not known whether cenvat credit was availed by Vivin Laboratories in respect of the said capital goods or not. In this regard, it is submitted that Rule 10 permits the assessee to transfer the balance in the credit ledger along with inputs or capital goods and does not require that the assessee can transfer credit corresponding only to the quantum of inputs/capital goods transferred to the new owner.
20. It is further submitted that the subject issue is not in respect of Rule 3 of the CCR as contended by the department, since the issue is not relating to eligibility of cenvat credit, but merely the transfer of cenvat credit available in the account of the transferer.
21. In this regard, reliance is placed on the decision of Hon’ble Tribunal in the case of Sunpack vs. CCE, Pondicherry, 2008 (223) E.L.T. 95 (Tri. – Chennai) and the same was affirmed by the Hon’ble High Court of Madras in the case of CCE, Pondicherry vs. CESTAT, 2008 (230) ELT 209 (Mad.). The Hon’ble Madras HC had held that:
“8. From the above, it is clear that the capital goods, the inputs and the balance unutilised credit balance in question have been properly received and accounted for by the assessee in the respective registers. The rule does not require that the assessee can transfer the credit corresponding only to the quantum of inputs transferred to the new factory, but permits the assessee to transfer the available credits along with inputs and capital goods in stock at the factory to the new location. Thus, requirement of Rule 8 has been fulfilled by the second respondent.”
22. The afore mentioned decision of Madras High Court was maintained by the Hon’ble Supreme Court in Commissioner v. CESTAT – 2009 (237) E.L.T. A48 (S.C.)].
Even when no inputs are lying in stock, transfer of cenvat credit in respect of inputs cannot be denied.
22.1 The Respondent submitted that there were no inputs lying in stock on the date of transfer of premises to the Respondent and the said fact was also verified by the Range Officer’s Report, however, the JAC kept asking the Respondent to provide stock ledgers of Vivin Laboratories, even though the returns for availing cenvat credit in respect of the inputs as filed by Vivin Labs was available with the department.
22.2 Even otherwise, when no stock of raw material relating to credit is available, request for transfer of unutilized credit cannot be denied. A plain reading of Rule 10 clearly shows that there is no such mandatory requirement of physical transfer of inputs or capital goods at the time of transfer of credit. If stock of inputs as such or in process or capital goods are available at the time of application of transfer of unutilized credit, the same should also be transferred to the new ownership. If there are no such inputs or capital goods available and only Cenvat Credit alone is lying unutilized at the time of transfer of the factory, even then, the unutilized credit is to be transferred. The transfer of credit cannot be denied on the ground that there was no input available at the time of transfer of factory.
22.3 In this regard, reliance is placed on the following decisions:
(a) Tera Cables India Pvt Ltd. vs. CCE, Ahmedabad, 2010 (258) E.L.T. 111 (Tri. – Ahmd.) which was affirmed by the Hon’ble Gujrat High Court in Commissioner Tera Cables India Pvt. Ltd. – 2014 (299) E.L.T. A61 (Guj.)]. The Hon’ble Tribunal had observed that:
“5. In as much as in the present case there was no raw material available, the fact of non-transfer of raw material cannot be held against the assessee and the credit cannot be denied on the above ground. As such the ratio of the above decisions fully applied to the facts of the instant case.”
(b) Kevin Enterprises Pvt Ltd. vs. CCE, Vadodara, 2007 (219) E.L.T. 181 (Tri. – Mumbai)wherein it was held that:
“5. It appears to us from the record that while sending a cryptic communication to the appellant, stating that the Commissioner did not consider the appellant’s request as there were no provisions for transfer of credit without transfer of inputs, there was no indication as to whether the Commissioner had applied his mind for reaching the satisfaction as contemplated under sub-rule (21) of Rule 57F, which corresponds to Rule 8(2) of Cenvat Rules. It is apparent that, no hearing was given to the appellant by the Commissioner before the making of the said order. No speaking order of the Commissioner has been placed on record. As held in Aar Aay Products (supra), there was a clear lapse, where neither hearing, nor a speaking order had been made in such cases. It was incumbent upon the Commissioner to have given a specific finding in connection with the appellant’s plea that there was no stock of inputs which could be transferred, and whether the capital goods on which credit was availed were duly accounted for, as contemplated by Rule 8(2)of the Cenvat Rules. It is evident that the question of transferring stock of inputs could arise only if it exists in cases where capital goods on which credit has been availed have been duly accounted for. In other words, where the stock did not exist and the capital goods, on which the credit was availed, were duly accounted for, transfer of Cenvat credit lying unutilised, should not be refused. For statistical purposes, where in such cases there is no stock of inputs, the transfer entry would show transfer of “Nil” stock.”
(c) CCE Vs. Dr. Reddy’sLaboratoriesltd, 2005 (191) ELT 660 (Tri. Che)
(d) AAR AAY Products Pvt. Ltd. V/s. CCE, 2003 (157) ELT 40 (Tri. Del)
(e) Apco Industries Ltd Vs CCE, 2004 (177) ELT 647 (Tri Mum)
(f) New Chem Industries Ltd s. CCE, 2005 (191) ELT 614 (Tri. Mum)
(g) CCE Vs. Smithkline Beecham Consumer Health Care Ltd., 2007 (209) E.L.T. 96 (Tri. – Chennai)
No requirement for specific provision for transfer of liabilities.
23. The revenue has contended that there should be a specific provision for transfer of liabilities to the new ownership, which is a precondition for transfer of cenvat credit, without satisfying the said condition, benefit of transfer of credit cannot be given by liberal interpretation through vague understanding of terms.
24. Rule 10(1) of the CCR provides that transfer of unutilized cenvat credit was permissible in case of transfer of ownership on account of a merger/amalgamation with a specific provision for ‘transfer of liabilities of such factory’.
25. Therefore, only the liabilities limited to the ‘factory’ premises which were transferred to the Respondent are to be considered for the purpose of Rule 10 of the CCR and not the outstanding liabilities of M/s. Vivin Laboratory.
26. In this regard, reference should be made to the definition of ‘Factory’ as provided under Section 2(e) of the Central Excise Act, 1944:
“Factory” means any premises, including precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on.
27. The above definition can be conveniently divided into two parts. The first part covers “factory” means any premises including the precincts thereof where any excisable goods are manufactured.
28. The Hon’ble Delhi High Court in para 7(4) of their decision in Delhi Cloth & General Mills Co. Ltd. Vs. Joint Secretary, Government of India – 1978 (2) ELT J121 has held that the meaning of “factory” is not restricted to the part in which the excisable goods are manufactured but includes the whole of the premises in a part of which excisable goods are manufactured.
29. The Supreme Court in para 11 of their decision in Grauer & Weil (India) Ltd. Vs. CCE – 1992 (57) ELT 321 (SC)has held that premises means a piece of land including its buildings or a building together with its grounds or appurtenances and precincts mean the areas surrounding a place. Further, the Supreme Court has held that ‘any premises including the precincts thereof’ is wide enough to cover all buildings with its surroundings which form part of one unit.
30. The term “premises” and “precincts” have been defined in the following dictionaries as under:
Premises
– Oxford Encyclopedic Dictionary
-
-
- (pl.) House, building, with grounds and appurtenances.
-
– The New International Webster’s Comprehensive Dictionary of the English Language
– 4. pl. A distinct portion of real estate; land or lands; land with its appurtenances, as buildings:
– The Chambers Dictionary
(in pl) the aforesaid (property; law); hence, a building and its adjuncts, esp. a public house or place of business;
Precincts
– Oxford Encyclopedic Dictionary
Space enclosed by walls or other boundaries of a place or building, esp. of place of warship; boundary; (pl.) environs. 2. (town planning) Area from which main-road (or all) traffic is excluded. 3. Subdivision of county or city or ward for election and police purposes.
– The New International Webster’s Comprehensive Dictionary of the English Language
1. A place definitely marked off by fixed lines; also, the boundary of a designated place. 2. A minor territorial or jurisdictional district.
31. Therefore, only the liabilities in respect of the premises transferred by Vivin Laboratires to the Respondent, such as lien over property, encumbrances etc. were to be taken into consideration for the purpose of Rule 10 of CCR, rather than all the liabilities of the Company such as creditors, loans etc.
32. In the present case, it is to be noted that there were no outstanding liabilities existing in respect of the factory on date of transfer, as has been stated in para 5 of schedule 3 of the sale deed and the same is extracted below for ease of reference:
“5. Outgoings
There is no outstanding liability for any rent, service charge, insurance rent, rates or taxes other outgoings in respect of the property.”
33. Even otherwise, the Respondent has submitted a letter of undertaking with their letter dated 18.06.2010 they had undertaken any to discharge any liabilities arise in the future on account of acquisition of the premises of Vivin Labs.
34. Additionally, Vivin Laboratories has also provided an undertaking that there were no outstanding liabilities including liabilities towards creditors pertaining to the premises on the date of transfer to the Respondent.
Interpretation of procedure prescribed under Rule 10 of CCR.
35. The Revenue has contended that they are not disputing the claim of the Respondent, nature of documents etc, but the procedure adopted for such transfer was disputed in the instant case since the two invoices for transfer of capital goods did not match with the value of capital goods. In this regard, the appeal has been filed placing reliance on numerous cases on the issue that liberal interpretation should not be given to a statutory provision.
36. It is humbly submitted that the contention of the revenue is not sustainable for the reason that the benefit of transfer of Credit available in the account of the transferer as contemplated in Rule 10 of the CCR cannot be rejected due to minor procedural infirmities and adopting a hyper technical approach adopted by Revenue as was held in the case of CCT, Hyderabad Vs Eenadu Television Pvt Ltd [2018(11) TMI 166-Cestat Hyderabad.
37. The revenue’s contention that the Ld. Appellate Authority has remanded the matter without the scope of verification to be undertaken by the original authority is highly misconstrued and against the facts on record. In this regard, the relevant portion of the impugned order is extracted below:
“In view of the above, I am of the opinion, that the appellant is legally entitled to avail the cenvat credit which was transferred to the appellant on account of sale of the land, plant and machinery in terms of Rule 10 of cenvat credit Rules 2004 on the strength of the documents presented by the appellant. However, the only issue which remains is the submission of all documents by the appellant pertaining to the transfer of credit on the basis of which the quantum of credit avaialbe to the appellant is required to be decided. On this issue, I direct the appellant to furnish all the records/documents pertaining to transfer of the impugned credit within 10 days from receipt of this order to enable the JAC to quantify the cenvat credit to be transferred and pass an order to that extent.”
38. From the above, it is evident that the Appellate Authority had clearly provided the scope of verification to be undertaken by the original authority while remanding the matter vide the impugned order. The Original authority was merely required to quantity the admissible cenvat credit that could be transferred to the Respondent based on the information/documents provided by the Respondent vide their letter dated 25.10.2011.
39. When the Appellate Authority has taken into consideration the project implementation agreement while passing the impugned order and directed the original authority to consider the documents submitted by the Respondent pursuant to the impugned order, the Appellant Department has erred in submitting that the transfer of cenvat credit is to be rejected since the project implementation agreement was not submitted to the original authority.
40. The Range Officer had visited the factory premises which were transferred to the Respondent and had observed that there were no stock of inputs lying in stock on the date of the transfer and that the entire inputs were consumed or cleared on payment of duty. Further, the Range Office had also observed that the capital goods were installed in the factory premises which were transferred to the respondent. However, without giving any finding or recording reasons, the original authority failed to consider the said observations of the range officer.
41. Further, since no documents are prescribed under the Rule on the strength of which transfer can be claimed, the Appellate Authority was satisfied based on the documents submitted by the Respondent that transfer of credit was available.
42. Therefore, the submission of the revenue that satisfaction of the JAC is a precondition to the transfer of cenvat credit for non-consideration of the range officer’s report is not sustainable.
The documents submitted by the Respondent were not considered by the original authority and no opportunity was given to address the discrepancies in violation of principles of natural justice.
43. Therefore, the following documents were available on record of the Appellant Department:
(a) Letter dated 12.01.2011 in reply to Department letter 07.01.2011.
(b) Details of sale of plant & machinery vide various invoices nos.100 and 101 dated 30.12.2009 which shows sale of Plant & Machinery, Electrical Equipment, Laboratory Equipment, Computers & printers, electrical equipment and furniture & others along with annexures.
(c) RG 23 C Part II extracts showing various items of capital goods received by Vivin from 10.03.2008 to 30.12.2009.
(d) Letter dated 19.01.2011 in reply to the Department letter dated 07.01.2011that no stocks of inputs were available on date of transfer.
(e) Sale Deed 30.12.2009.
44. Even otherwise, the Appellate Authority took into consideration the Purchase Implementation Agreement and remanded the matter to the original authority for valuation. The requisite documents including the purchase implementation agreement were also submitted by the Respondent vide letter dated 25.10.2011 pursuant to the impugned order.
45. Further, in respect of the details pertaining to stock of inputs and ledgers of Vivin Laboratories, the Respondent on numerous occasions intimated that on date of transfer of premises, no inputs were lying in stock and the same was also verified and mentioned in the Range Officer’s Report.
46. Therefore, the revenue’s contention that the Respondent failed to submit documents is contrary to the findings in the order of the original authority. A baseless ground has been taken that the Respondent has not provided documents required for verification of cenvat credit eligible to be transferred. Peculiarly, it is not mentioned what further information was sought by the JAC to be satisfied, for permitting transfer of credit in terms of Rule 10 of CCR.
47. Further, as recorded in the impugned order, the Respondent was not given adequate opportunity of personal hearing, and the JAC rejected the transfer of credit on grounds of lack of correlation of documents, in violation of principles of natural justice.
48. Having considered the rival contentions we find that the Respondent is the successor owner of the factory of Vivin Laboratories, with its assets and liabilities (which is nil on date of transfer), due to change of ownership on account of sale. We also hold, Rule 3 of CCR is not applicable in the facts of the present case, as Rule 3 applies in case of ‘removal’ of capital goods. Here there is no removal, as the capital goods remained in the same factory/premises, and there is only change of ownership.
Thus we hold that the respondent-assessee is entitled to take transfer of Cenvat Credit available in the books of the transferor – Vivin Labs, as per Rule 10 of Cenvat Credit Rules.
49. Accordingly, we dismiss this appeal by Revenue, and uphold the impugned Order in Appeal.
(Order pronounced in open court on 22.08.2023)
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