Case Law Details

Case Name : Auora Foam (P.) Ltd. Vs Commissioner of Central Excise, Chandigarh (CESTAT Delhi)
Appeal Number : Final Order No. 377 OF 2011-EX(PB)
Date of Judgement/Order : 28/04/2011
Related Assessment Year :
Courts : All CESTAT (612) CESTAT Delhi (194)

CESTAT, NEW DELHI BENCH

Auora Foam (P.) Ltd.

versus

Commissioner of Central Excise, Chandigarh

FINAL ORDER NO. 377 OF 2011-EX(PB)

APPEAL NO. E/1669 OF 2005

APRIL 28, 2011

ORDER

Rakesh Kumar, Technical Member

The appellants are engaged in the manufacture of P.U. Foam Sheets/regular blocks chargeable to central excise duty under sub-heading No. 3921.11 of the Central Excise Tariff Act. They avail the facility of Cenvat credit of central excise duty paid on inputs and capital goods used in or in relation to the manufacture of the finished goods as per the provisions of Cenvat Credit Rules, 2002. The appellant is a Private Limited Company. In May, 2003, the shares of the appellant-company were purchased by Shri Rahul Gautam, Shri Praduman Patel and M/s. Sheela Foam Pvt. Ltd. However, after the purchase of the shares of the appellants company by Shri Rahul Gautam and Shri Praduman Patel and M/s. Sheela Foam Pvt. Ltd., the name of the company remained the same. The appellant-company applied for endorsements, in the registration certificate regarding change of the management in the vide their letter dated 28-7-2003 which was allowed on the same day. However, as on 26-5-2003, the date on which the shares of the appellant-company were purchased by Shri Rahul Gautam, Shri Praduman Patel and M/s. Sheela Foam Pvt. Ltd., there was Cenvat credit balance of Rs. 4,37,697/- in the RG-23A Part-II Account, which was utilised for payment of duty as finished goods. On 18-8-2003, when the jurisdictional central excise officers visited the factory and checked the records, they were of the view that since there has been change in ownership of the factory, in accordance with the provisions of Rule 8 of the Cenvat Credit Rules, 2002, the appellant should have applied to the Asstt. Commissioner for transfer of the Cenvat credit lying in balance as on 26-5-2003 and since they did not seek necessary permission from the Asstt. Commissioner, the same could not be utilised by the appellant.

1.1 On 18-8-2003 the officers also conducted physical verification of the cenvated inputs and shortage of 6578.27 Kgs. of P.U. Foam Irregular Blocks (raw materials) involving central excise duty of Rs. 84,201.85 was found for which the appellant could not give any satisfactory explanation.

1.2 It is in the above background that a show cause notice dated 31-3-2004 was issued to the appellant for –

(a)  recovery of Cenvat credit of Rs. 5,21,899/- (Rs. 437697.36 + Rs. 84,201.85) from the appellant-company under Rule 12 of the Cenvat Credit Rules, 2002 read with Section 11A of the Central Excise Act, 1944 along with interest; and

(b)  imposition of penalty on the appellant under Rule 13 of the Cenvat Credit Rules read with Section 11AC of the Act and also under Rule 27 of the Central Excise Rules, 2002.

1.3 The show cause notice was adjudicated by the Addl. Commissioner vide order-in-original dated 23-7-2004 by which –

(a)  Cenvat credit demand of Rs. 5,21,899/- was confirmed along with interest; and

(b)  Penalty of equal amount was imposed on the appellant under Rule 13 of the Cenvat Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944.

1.4 On appeal being filed by the appellant-company to the Commissioner (Appeals), the Commissioner (Appeals) vide order-in-appeal No. 55/CE/CHD/2005, dated 22-2-2005 upheld the order-in-original and dismissed the appeal. It is against this order of the Commissioner (Appeals) that the present appeal has been filed.

2. Heard both the sides.

3. Shri Praveen Sharma, Advocate, ld. Counsel for the appellant, assailing the impugned order pleaded that there was no shortage of cenvated inputs and the appellant had immediately intimated the officers vide their letter dated 21-8-2003 about their accounting method, that as per their accounting procedure, they issue a certain quantity of irregular blocks to the production line and debit the input account to the extent of blocks consumed in production of final products during a particular day and the remaining quantities of blocks remain in the manufacturing area, that therefore, at a given time, certain quantities of blocks will be available in the manufacture area which are part of the stock of inputs and the officers had not taken such quantities of blocks during the time of physical verification, which resulted in the alleged shortages while, there was no shortage of inputs namely irregular P.U. Foam Blocks, that there is no change in the ownership of the factory, the owner being the company – M/s. Auora Foam Pvt. Ltd., which is a juristic person, that though the shares of the appellant-company, M/s. Auora Foam Pvt. Ltd. have been acquired by Shri Rahul Gautam (100 shares), Praduman Patel (100 shares) and M/s. Sheela Foam Pvt. Ltd. (3,37,500 shares), resulting in change of the management, the ownership of the factory still remains with the appellant-company, M/s. Auora Foam Pvt. Ltd. and in view of this, there was no transfer of ownership of the factory and hence, Rule 8 was not applicable, that the Tribunal in the case of L.D. Industries v. CCE 2003 (157) E.L.T. 459 (Trib. – Delhi) has held that companies are distinct legal entities from that of shareholders, that even if it is presumed for the sake of argument that there was change of ownership and Rule 8 of the Cenvat Credit Rules, 2002 was applicable, no prior permission of the Commissioner, or Asstt. Commissioner was required for utilising the credit lying in balance and in this regard, the reliance is placed on judgment of the Tribunal in the case of Solaris Bio-Chemicals Ltd. v. CCE 2005 (179) E.L.T. 216 (Trib. – Mum.), that there was no mala fide on the part of the appellant and all the activities were within the knowledge of the department including the change of Directors and shareholders, that there was no suppression on the part of the appellant and in such circumstances, the provisions of Rule 11AC was not applicable and that in view of this, the impugned order is not correct.

4. Shri Sunil Kumar, ld. Departmental Representative, defending the impugned order pleaded that there was shortage of PU Foam Blocks for which explanation given by the appellant is not satisfactory, that there is agreement of sale between the appellant-company, M/s. Auora Foam Pvt. Ltd. and M/s. Sheela Foam Pvt. Ltd., that from the agreement between the appellant-company and M/s. Sheela Foam Pvt. Ltd., it is clear that both the companies had mutually agreed for take-over of the appellant-company by M/s. Sheela Foam Pvt. Ltd. as per the terms and conditions of the agreement, that after the transfer of shares of the appellant-company to a new person, the majority of the shares being purchased by the M/s. Sheela Foam Pvt. Ltd, it is M/s. Sheela Foam Pvt. Ltd., which became the new owner, that since there is change of the ownership, the provisions of Rule 8(1) of Cenvat Credit Rules, 2002 would be applicable and before utilising the Cenvat credit lying in balance as on the date of change of ownership, the permission of the Asstt. Commissioner should have been obtained and since the same was not obtained, the credit has been wrongly utilised.

5. We have carefully considered the submissions from both the sides and perused the records. The first point of dispute is as to whether there was shortage of cenvated inputs – P.U. Foam Irregular Blocks weighing 6578.27 Kgs. involving Cenvat credit of Rs. 84,202/-. On going through the records, we find that verification of the stock of inputs had been done in presence of Shri Dinesh Godiyal, Asstt. Manager of the appellant-company and at the time of stock taking, the stock which was physically available was found to be 15272 Kgs. as against the balance of 21850.27 Kgs. in RG-23A Part-I Register. Shri Dinesh Godiyal at that time was fully satisfied with the manner of stock taking and had not raised any objection and at that time, he could not give any explanation about the shortage, other than saying that the shortage may be due to short receipt of the raw materials over a period of time and also due to shrinkage. At that time, he did not state that there is some stock of Irregular P.U. Blocks lying in the manufacturing area which has not been taken into account. In view of this, the appellant’s plea at the appellate stage that missing quantity of Irregular P.U. Foam Blocks was lying in the manufacturing area but was not taken into account, cannot be accepted. In view of this, we find that Cenvat credit demand of Rs. 84,201.85 in respect of shortage of cenvated Irregular P.U. Foam Blocks had been rightly upheld.

6. As regards the Cenvat credit of Rs. 4,37,697.36, the same has been raised on the ground that this was the credit in balance in the Cenvat credit account of the appellant-company as on 26-5-2003 when the shares of the appellant-company were acquired by Shri Rahul Gautam, Shri Praduman Patel and M/s. Sheela Foam Pvt. Ltd. and that since there is change of ownership of the factory, this credit, in accordance with the provisions of Rule 8(1) could be availed only with the permission of the Asstt. Commissioner.

7. Rule 8 of the Cenvat Credit Rules, 2002 is reproduced below :-

“Rule 8. 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 unutilised in his accounts to such transferred, sold, merged, leased or amalgamated factory.

(2) The transfer of the Cenvat credit under sub-rule (1) 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 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 Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be.”

8. From a perusal of this rule, it will be seen that the same is applicable in three circumstances – (1) when the manufacturer of the final products shifts his factory to another site, (2) the factory is transferred from the existing owner to the another person on account of change of ownership, and (3) the factory is transferred on account of merger, amalgamation, lease or transfer of the factory to a joint venture with specific provision for transfer of liabilities of such factory. As per the provisions of Rule 8(1) in the above circumstances, the existing manufacturer shall be allowed to transfer the Cenvat credit lying unutilised in his accounts to such transferred, sold, merged, leased or amalgamated factory. As per sub-rule (2) of Rule 8, the transfer of the Cenvat credit under sub-rule (1) 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 to a 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 Asstt. Commissioner/Deputy Commissioner of Central Excise. Thus, in the circumstances enumerated in sub-rule (1), in the case of transfer of ownership of the factory or shift to another site, the transfer of Cenvat credit lying unutilised to such transferred, sold, merged, leased or amalgamated factory would be allowed subject to fulfilment of certain conditions to the satisfaction of the Asstt. Commissioner of Central Excise or the Deputy Commissioner of Central Excise. The department’s allegation is that in this case, there is transfer of ownership of the factory due to sale and hence the transfer of the credit to the factory owned by a new owner, could be allowed only by the Asstt. Commissioner/Dy. Commissioner subject to fulfilment of certain conditions to his satisfaction. However, we find that in this case, the owner of the factory is the appellant-company – M/s. Auora Foam Pvt. Ltd. and it is only the shares of M/s. Auora Foam Pvt. Ltd. which have been purchased by different persons – Shri Praduman Patel, Shri Rahul Gautam and M/s. Sheela Foam Pvt. Ltd. and as such, the owner of the factory still remains the appellant-company, M/s. Auora Foam Pvt. Ltd. It is only the shareholders and directors of M/s. Auora Foam Pvt. Ltd., who have changed. Even the agreement of sale between M/s. Auora Foam Pvt. Ltd. and M/s. Sheela Foam Pvt. Ltd. mentions the takeover of M/s. Auora Foam Pvt. Ltd. by M/s. Sheela Foam Pvt. Ltd. and as per the condition 9 of the agreement, the appellant-company, M/s. Auora Foam Pvt. Ltd. shall continue to carry on the activities of manufacture/processing different goods of PU Foam and other business operations. This is, thus, a case where only the control of appellant-company has changed but the appellant-company continues to be the owner of the factory, in question. Rule 8 is attracted only when the factory shifts to another site, or its ownership is transferred on account of sale to another person or the ownership is changed on account of merger, amalgamation, lease or transfer of the factory to a joint venture, which is not the case here. In view of this, we hold that the Cenvat credit demand of Rs. 4,37,697.36 is not sustainable and the same is set aside.

9. In view of the above discussion, while the order of the Commissioner (Appeals) with regard to confirmation of the Cenvat credit demand of Rs. 84,201.85 along with interest is upheld, the impugned order upholding the confirmation of Cenvat credit demand of Rs. 4,37,697.36 is set aside. In view of the reduction in quantum of Cenvat credit demand, the penalty under Section 11AC is also reduced to Rs. 84,201.85 (Rupees Eighty Four Thousand two hundred one and eighty five paise only). The impugned order stands modified as above.

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0 responses to “Mere change in shareholding pattern not amounts to transfer of factory”

  1. sureshbalan says:

    An Order which is useful for deciding a case of transfer feee in respect of lease where ownership continues with pvt.company.

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