Tribunal overturns denial of CENVAT credit on merger & capital goods

The Tribunal allowed the appeal in favor of the appellant in a case concerning the transfer of CENVAT credit in the merger of two units and the availment of CENVAT credit on capital goods. The Tribunal held that the denial of CENVAT credit to the merged unit based solely on the lack of permission from authorities was incorrect. Additionally, it found that the appellant correctly availed the CENVAT credit on capital goods as per the rules. The impugned order denying CENVAT credit was deemed unsustainable and set aside.

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Issues:
- Transfer of CENVAT credit in the case of merger of two units
- Availment of CENVAT credit on capital goods

Transfer of CENVAT credit in the case of merger of two units:
The case involved a merger of two units, resulting in the formation of a single unit. The merged unit had applied for a new registration certificate but did not seek permission for the transfer of unutilized CENVAT credit balance as required by Rule 10(3) of the CENVAT Credit Rules, 2004. The adjudicating authority relied on Rule 10, which allows the transfer of CENVAT credit unutilized in accounts to a merged factory subject to certain conditions. The rules do not explicitly mandate separate written permission from jurisdictional authorities for such transfers. The Tribunal found that the provisions of Rule 10 were complied with as the stock of inputs and capital goods were transferred to the merged unit and accounted for satisfactorily. The Tribunal held that the denial of CENVAT credit to the merged unit solely on the grounds of lack of permission from authorities was incorrect. The decision was based on precedents such as Solaris Bio-Chemicals Ltd., Hewlett Packard (I) Sales (P) Ltd., and Kiran Pondy Chems Ltd.

Availment of CENVAT credit on capital goods:
Regarding the demand for ineligible CENVAT credit availed on capital goods, the Tribunal noted that the appellant had received capital goods over a specific period and availed 100% credit on these goods when the unit started functioning fully. The CENVAT Credit Rules mandate bifurcating the credit, with 50% in the year of receipt and 50% in the subsequent financial year. In this case, the appellant had not availed any credit on the capital goods during the year of receipt but had availed 100% credit later. The Tribunal found that the appellant correctly availed the CENVAT credit on capital goods as they were received, installed, and credit was taken after production activities commenced. The impugned order denying CENVAT credit on capital goods was deemed unsustainable and set aside.

In conclusion, the Tribunal held that the impugned order was unsustainable, and therefore set it aside, allowing the appeal in favor of the appellant.

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