Cenvat credit transfer on merger and staggered capital goods credit allowed to survive pre-deposit challenge

On merger of units, Cenvat credit transfer was treated as permissible where inputs, work-in-progress and capital goods stood transferred and were accounted for to the satisfaction of the jurisdictional authority; absence of prior permission from the Deputy Commissioner or Assistant Commissioner was not shown to be a statutory prerequisite, so the objection was not sustainable. On capital goods, Rule 4(2)(a) was read as allowing only 50% credit in the relevant financial year, with the balance available later; therefore, taking the remaining credit in a subsequent year was not rejected for pre-deposit purposes. The assessee was found to have a prima facie case and obtained waiver of pre-deposit and stay of recovery pending appeal.

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Issues: (i) Whether Cenvat credit could be transferred on merger of units without prior permission of the jurisdictional Deputy Commissioner or Assistant Commissioner under Rule 10(3) of the Cenvat Credit Rules, 2004; (ii) whether 100% Cenvat credit on capital goods could be availed in a subsequent financial year contrary to Rule 4(2)(a) of the Cenvat Credit Rules, 2004.

Issue (i): Whether Cenvat credit could be transferred on merger of units without prior permission of the jurisdictional Deputy Commissioner or Assistant Commissioner under Rule 10(3) of the Cenvat Credit Rules, 2004.

Analysis: Rule 10(3) requires that the inputs, work-in-progress or capital goods on which credit has been availed should stand transferred and be accounted for to the satisfaction of the jurisdictional authority. The demand notice did not allege that the stock or capital goods were not transferred, but proceeded only on the absence of prior permission. On the admitted facts of merger and transfer of the business to the new entity, prior permission was not shown to be a statutory prerequisite.

Conclusion: The objection based on absence of prior permission was not sustainable, and the appellant made out a prima facie case on this issue in favour of the assessee.

Issue (ii): Whether 100% Cenvat credit on capital goods could be availed in a subsequent financial year contrary to Rule 4(2)(a) of the Cenvat Credit Rules, 2004.

Analysis: Rule 4(2)(a) permits only up to 50% credit on capital goods in the relevant financial year, with the balance governed by the scheme of availment thereafter. The record showed that the appellant had taken the credit in the subsequent financial year, and the objection that the entire credit had to be taken only in the same year was not accepted for the purpose of pre-deposit.

Conclusion: The appellant established a prima facie case on this issue as well, in favour of the assessee.

Final Conclusion: The appellant was entitled to waiver of pre-deposit and stay of recovery pending disposal of the appeal.

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