1996 (9) TMI 366 - AT - Central Excise

Continuity of Modvat credit despite change in management upheld by Tribunal

The Tribunal held that the appellants were eligible for the benefit of Modvat credit despite a change in management from Usha Rectifier Corporation ... Modvat - Change in Management not to effect unutilised credit Issues:Eligibility of the appellants to avail Modvat credit lying unutilised in RG 23 Part II account when the present management took over the business of the unit.Analysis:The appeal before the Appellate Tribunal CEGAT, MADRAS involved the issue of whether the appellants were eligible to avail of Modvat credit that was unutilised in the RG 23 Part II account when the present management took over the business of the unit. The appellant's representative argued that despite the change in management from Usha Rectifier Corporation (India) Ltd. to Usha Iron and Ferro Metals Corporation Ltd., the management remained under the same umbrella, and therefore, the Modvat credit should still be available for utilisation. However, the Tribunal noted that each company is a separate legal entity under the Companies Act, and the new management had taken over the erstwhile unit. The Tribunal emphasized that the benefit of Modvat credit is linked to the inputs received in a particular unit and the utilisation of those inputs in the same factory. As long as the goods manufactured and inputs used remain the same, the eligibility for Modvat credit should continue even after a change in management. Therefore, the Tribunal held that the appellants were eligible for the benefit of Modvat credit, and the appeal was allowed.In the detailed analysis, the Tribunal considered Rule 57A, which specifies the inputs eligible for Modvat credit and requires a declaration by the manufacturer for availing the credit. The starting point for availing Modvat credit is determined by this declaration. The Tribunal highlighted that the utilisation of Modvat credit under Rule 57F is factory-specific, meaning the credit is linked to the inputs received and used in a particular factory. Therefore, the question of eligibility arises when there is a change in management. The Tribunal concluded that as long as the operations and goods remain the same before and after the change in management, the eligibility for Modvat credit should continue. Since the goods manufactured and the Modvat credit sought to be utilised remained the same, the change in management should not bar the appellants from utilising the credit. Consequently, the Tribunal held that the appellants were indeed eligible for the benefit of Modvat credit, and the appeal was allowed.