Tribunal rules no interest payable on credit reversal, transfer complied with rules

The Tribunal ruled in favor of the appellant, finding that no interest was payable on the reversal of credit amounting to Rs. 40,60,683. It was determined that the transfer of input service credit balance to the new company complied with the applicable rules, and there was no credit balance against inputs and capital goods at the transfer date. The Tribunal concluded that the demand for interest by the Department was unwarranted and incorrect, setting aside the impugned order and allowing the appeal with any necessary relief according to the law.

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Issues:
- Appeal against Order-in-Appeal No. SK/ GST(AUDIT-ii)/mum/36/Appeals-III/2018
- Liability for interest on reversal of credit of Rs. 40,60,683

Analysis:
The appeal was filed against an order passed by the Commissioner of CGST & Central Excise, Mumbai, regarding the liability for interest on the reversal of credit amounting to Rs. 40,60,683 by the appellant. The appellant, engaged in providing taxable services, had transferred its business of food service management to another company and reversed the credit balance as per the resolution passed by the Board of Directors. The appellant contended that the transfer of business included the transfer of assets and liabilities, including the CENVAT Credit balance, to the new company. The appellant argued that the reversed credit amount was related to input service credit, not input and capital goods credit. The Department raised objections and issued a show-cause notice demanding payment of interest on the reversed credit. The appeal was filed after the demand was confirmed with interest and penalty by the adjudicating authority and rejected by the Commissioner (Appeals).

Upon considering the submissions from both sides and reviewing the records, the Tribunal focused on determining whether interest was payable on the reversal of credit amount. The Tribunal noted that the appellant had followed the mandatory provisions under Rule 10(2) of the CENVAT Credit Rules, 2004, while transferring the input service credit balance to the new company. The Tribunal accepted the appellant's assertion that there was no credit balance against inputs and capital goods as of the transfer date, and the balance was solely related to input service credit. The Tribunal found no contrary evidence presented by the Department to dispute this claim. Therefore, the Tribunal concluded that insisting on following the transfer of credit procedure under Rule 10(3) for input and capital goods when transferring input service credit was unwarranted and incorrect. As a result, the impugned order was set aside, and the appeal was allowed with any consequential relief as per the law.

In summary, the Tribunal ruled in favor of the appellant, determining that no interest was payable on the reversal of credit amounting to Rs. 40,60,683, as the transfer of input service credit balance to the new company had been done in accordance with the relevant rules, and there was no credit balance against inputs and capital goods at the time of transfer.

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