2016 (7) TMI 1028 - AT - Central Excise

Tribunal grants lessee CENVAT credit transfer right, rejecting Revenue's objections

The Tribunal allowed the appeal, granting the lessee the right to the CENVAT credit amount transferred by the lessor as per Rule 10 of CENVAT Credit ... Transfer of CENVAT credit under Rule 10 of CENVAT Credit Rules, 2004 - Conversion of DTA unit to EOU and entitlement to unutilised credit - Requirement of transfer of liabilities in case of lease for Rule 10 transfer - Applicability of Board Circular No.77/1999-Cus. to CENVAT transfers after 2004 - Penalty under Rule 15(1) of CENVAT Credit Rules, 2004Transfer of CENVAT credit under Rule 10 of CENVAT Credit Rules, 2004 - Conversion of DTA unit to EOU and entitlement to unutilised credit - Requirement of transfer of liabilities in case of lease for Rule 10 transfer - Entitlement of the appellant to avail CENVAT credit transferred from the lessor unit under Rule 10 where transfer/lease and permission by authority existed. - HELD THAT: - The Tribunal found that the Assistant Commissioner had granted permission under Rule 10 for transfer of unutilised CENVAT credit from the lessor unit to the lessee and that such permission was not withdrawn. Rule 10 permits transfer of credit on account of lease or transfer of the factory, subject to the conditions thereunder; several judicial precedents relied upon by the appellant establish that conversion of a DTA unit into an EOU does not per se bar transfer of unutilised credit and that credit lying in the books at the time of conversion may be transferred. Having regard to the specific administrative permission granted and consistent Tribunal and High Court decisions, the demand confirming recovery of the transferred credit was held to lack merit and was set aside.The appellant is entitled to the CENVAT credit transferred under Rule 10; the demand in respect of that credit is not sustainable.Applicability of Board Circular No.77/1999-Cus. to CENVAT transfers after 2004 - Penalty under Rule 15(1) of CENVAT Credit Rules, 2004 - Whether Board Circular No.77/1999-Cus. barred the transfer/availment of the unutilised credit and whether the penalty and interest confirmed were sustainable. - HELD THAT: - The Tribunal observed that Circular No.77/1999-Cus. did not explain under which provision unutilised credit would lapse and pre-dated the CENVAT Credit Rules, 2004 and the changed scheme under those rules. In light of the statutory scheme post-2004 and consistent judicial decisions, the Circular could not be applied to defeat transfer permitted under Rule 10. Consequently, the consequential demand, interest and penalty confirmed by the lower authorities were not sustained.Circular No.77/1999-Cus. does not preclude the transfer/availment of the credit under the post-2004 CENVAT regime; the penalty and demand confirmed are unsustainable.Final Conclusion: The appeal is allowed; the Tribunal upholds the appellant's entitlement to the CENVAT credit as permitted by the Assistant Commissioner under Rule 10, rejects the Revenue's reliance on Circular No.77/1999-Cus., and sets aside the demand, interest and penalty with consequential relief, if any, to the appellant. Issues:1. Transfer of CENVAT credit from lessor to lessee.2. Interpretation of Rule 10 of CENVAT Credit Rules, 2004.3. Validity of demand for CENVAT credit, interest, and penalty.4. Applicability of Circular No.77/1999-Cus.5. Case laws supporting transfer of unutilised credit.Issue 1: Transfer of CENVAT credit from lessor to lesseeThe appellant, a lessee, entered into a lease agreement with a DTA unit and received permission to operate it as an EOU. The lessor transferred unutilised CENVAT credit to the appellant as per Rule 10 of CENVAT Credit Rules, 2004. The appellant argued that all assets and liabilities were transferred as per the lease agreement, enabling them to avail the credit. The Revenue contended that the appellant did not take over assets and liabilities, thus not entitled to the credit.Issue 2: Interpretation of Rule 10 of CENVAT Credit Rules, 2004The Tribunal analyzed Rule 10, which allows transfer of unutilised credit from lessor to lessee in specific circumstances. The appellant fulfilled the conditions for credit transfer as per the rule, including the transfer of liabilities. The Tribunal cited precedents supporting such transfers and emphasized the lack of a prohibition on credit transfer upon conversion to an EOU.Issue 3: Validity of demand for CENVAT credit, interest, and penaltyThe impugned order confirmed the demand for CENVAT credit, interest, and imposed a penalty on the appellant. The Tribunal found no merit in the demand, considering the legality of the credit transfer and the lack of rationality in the Revenue's objections. The Tribunal highlighted the numerous judicial decisions upholding similar credit transfers, rendering the demand against the appellant unjustified.Issue 4: Applicability of Circular No.77/1999-Cus.The Revenue cited Circular No.77/1999-Cus., stating that unutilised credit would lapse upon conversion from a DTA unit to an EOU. However, the Tribunal noted that the circular was issued under the old Central Excise Act, and the present case fell under the CENVAT Credit Rules, 2004. The Tribunal concluded that the circular did not provide a basis for denying the credit transfer in the current scenario.Issue 5: Case laws supporting transfer of unutilised creditThe appellant relied on various case laws, including decisions by different Tribunals and High Courts, which upheld the transfer of unutilised credit from lessor to lessee upon conversion to an EOU. The Tribunal extensively quoted these cases to support the appellant's claim and emphasized the consistent legal precedent in favor of such credit transfers.In conclusion, the Tribunal allowed the appeal, granting the appellant the right to the CENVAT credit amount originally permitted for transfer. The Tribunal found the Revenue's objections baseless, considering the legal provisions, precedents, and lack of merit in the demand for credit, interest, and penalty.