V. Unnikrishnan, Cochin
2. To have a proper evaluation of the situation, the relevant provisions are reproduced below:-
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.
From the above, it is evident that the eligibility to transfer the un utilized credit is absolute, in a case where there is no stock of cenvatted items available at the old site. However, in a case, where there is cenvatted items lying in the old site, unless these items are ‘also’ transferred to the new site, the credit transfer will not be admissible/allowed. The wordings used in sub rule 3 ‘if only’ and ‘also’ may give a wrong message that –if only the cenvatted items are available and the same are ‘also’ transferred to the new site, the transfer of unutilized credit is admissible. Strangely, the wordings in the earlier CCRs,2002 as well, rule 8 was on same lines.
3. Case Laws:
The subject matter was before the CESTAT benches at , Madras, Delhi as well as before the High Court of Madras.
(a) The Hon’ble HC , dismissed the appeal filed by the Dept, on 23/07/2009 .
Extracts of Headnote in the case law,–CCE, Pondicherry Vs CESTAT, 2009-TIOL-518-HC-Madras
“Central Excise – Transfer of balance CENVAT Credit from one factory to another due to shifting of factory – Stock of inputs not available as already put to use and genuineness thereof verified to the satisfaction of Deputy Commissioner – Denial of transfer of credit by department on the ground that stock of inputs not available for transfer extraneous to statutory provision in Rule 10of CENVAT Credit Rules – Tribunal’s finding in accordance with statute”.
(b) In another case of Commissioner of Central Excise Vs Sunpack ,the CESTAT Bench, Madras decided on 10/07/2008 ,on same lines upholding the case reported at 2007-TIOL-1693-Cestat,Madras.
(c) There was another case before CESTAT, Delhi ,in which the Bench headed by the President of CESTAT also decided the case on same lines on 27/06/2012,(2012TIOL 1446 Cestat Delhi) Fabrico India Limited Vs. Commissioner Central Excise, Meerut,
4. From the above, it can be concluded that the transfer of unutilized credit is admissible ,when the factory site is shifted. In case any balance of cenvatted items are available in the old site,the same ‘also’ should be transferred to the new site ,to get the balance of credit transferred.In other words, where there is no items available for shifting to new site, the transfer of credit is automatically permitted. As per sub rule(1).
5. It is settled law that under the cenvat scheme, there is no one to one correlation of inputs utilized with the finished goods and once the items are received, the credit can be taken in the cenvat accounts. It is, therefore, quite possible that the cenvat balance may be available as unutilized, even after the entire finished goods are cleared. When the assessee may be planning to shift the factory site, they would have stopped further procurement of inputs also. In the case of fabrication works. Moreover, the yard may have to be shifted near to the assembly site and there may not be any capital goods on which they had taken cenvat.
6. In all such cases, there is full justification to have accumulated credit to be eligible to be transferred to the new factory site. The change in rate of duty on steel items from 16% in 2007 ;to 10% and then to 8% from 2010 also would have been the reason for balance of accumulated credit, if the value addition was not above 100%. For the fabricated finished goods.
There is no justification to deny the transfer of unutilized cenvat credit only on the ground that there are no cenvatted items available to be physically shifted to the new factory site.
7. It is felt essential ,that the CBEC may come out with a clarification in the matter so that the poor assessees will be free form the recurring audit objections both by Internal Audit and CERA and the Range staff also will be relieved of replying such uncalled for objections.
The ideal solution would be to revise the sub rule 3 of rule 10 in such a manner to remove the ambiguity. It can very well be revised as –
Subject to the condition that ,if any inputs/capital goods are available, the same also should be transferred.