Cenvat credit on slump sale of a going concern passes to the transferee when inputs and work-in-progress are transferred.

On transfer of an ongoing factory under a slump sale, unutilised Cenvat credit relating to inputs and work-in-progress can pass to the transferee under Rule 10 of the Cenvat Credit Rules, 2004 if the stock is transferred with the business. Inputs left in the factory on an as-is-where-is basis were not treated as cleared merely because ownership changed, so recovery of credit from the transferor was not sustainable. The operative effect is that the credit attaches to the transferred manufacturing unit and cannot be demanded from the seller where the factory continues as a going concern.

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Issues: Whether Cenvat credit attributable to inputs and work-in-progress lying in a factory transferred by slump sale could be demanded from the seller, and whether Rule 10 of the Cenvat Credit Rules, 2004 permitted transfer of such credit to the buyer when the factory continued as an ongoing unit.

Analysis: The transfer was on an as-is-where-is basis and the inputs in question were not removed from the factory by the seller. The buyer took over the ongoing manufacturing unit and continued manufacture after the transfer. Rule 10 of the Cenvat Credit Rules, 2004 permits transfer of unutilized Cenvat credit when a factory is sold or transferred, provided the stock of inputs or work in process is also transferred along with the factory. The fact that the factory was sold partly did not exclude the operation of Rule 10, and the inputs lying in the factory could not be treated as having been cleared so as to attract recovery from the seller.

Conclusion: The demand of Cenvat credit from the seller was unsustainable and the appeal of the Revenue was liable to be dismissed.

Final Conclusion: On transfer of an ongoing factory together with stock of inputs and work in progress, the credit attached to such inputs passes with the business and cannot be recovered from the transferor merely because ownership changed.

Ratio Decidendi: Where a factory is transferred as an ongoing unit and the stock of inputs or work in progress is also transferred, Rule 10 of the Cenvat Credit Rules, 2004 allows the credit to pass to the transferee and no demand can be sustained against the transferor in the absence of removal of inputs from the factory.

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