Brief Facts

The Appellant [M/s. S.C. Johnson Products Private Limited (formerly known as M/s. Karamchand Appliances Private Limited)] is a manufacturer of insecticides & Electro thermic appliances falling under Chapters 38 & 35 respectively of the First Schedule to the Central Excise Tariff Act, 1985.

The Appellant acquired first 50% of the equity shares of M/s. Karamchand Appliances (having unit in Baddi) on March 21, 2003 and remaining 50% on May 12, 2005.

The scheme of amalgamation of the companies was approved by the Hon’ble Delhi High Court vide Order dated October 09, 2006, stating therein that the effective date of transfer would be from June 01, 2005.  Thereafter, the Appellant got the certificate of registration from the Registrar of Companies under the Companies Act, 1956 on November 11, 2006.

The Appellant also got itself registered with the Central Excise Department on January 24, 2007, pursuant to the application filed with the Department on December 28, 2006.

Department’s Allegation

During the course of verification of the records in the factory of the Appellant, the officers of internal audit wing of the Central Excise Department detected that as on May 12, 2006, the Appellant was having CENVAT Credit balance of Rs.31,12,929/- lying un-utilised in its Cenvat account in relation to input/input service, which were utilised for payment of duty on goods manufactured/cleared on or after May 12, 2005.

Utilization of CENVAT Credit was objected by the Department, on the ground that such credit was required to be transferred to the Appellant and thereafter to be utilised only after being allowed by the concerned Central Excise Officer in terms of sub-rule (3) of Rule 10 of the Cenvat Credit Rules, 2004.

 Show Cause Notice and adjudication thereof

The show cause proceedings initiated by the Department culminated in the adjudication order dated August 30, 2011, wherein Cenvat Credit of Rs.31,12,929/- was disallowed and equal amount of penalty was imposed on the Appellant under Rule 15 of the CENVAT Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944.

Besides, penalty of Rs.10,000/- was also imposed on the appellant under Rule 25 of the Central Excise Rules, 2002.

 Appeal before the Commissioner (Appeals)

In appeal against the said adjudication order, the Learned Commissioner (Appeals) vide the impugned order dated May 31, 2010 has upheld the adjudged demand excepting in reducing the quantum of equal penalty to Rs.5,00,000/-.  Hence, this present appeal before the Tribunal.

 Submissions of the Appellant before the Hon’ble Tribunal

The Appellant submitted that merger of M/s. Karamchand Appliances with the Appellant’s company was effective from June 01, 2005 in terms of the Hon’ble Delhi High Court Order dated October 09, 2006.  Thus, both the companies prior to such effective date i.e. June 01, 2005 were separate entities and as such, there was no scope for transfer of disputed CENVAT Credit of Rs.31,12,209/- lying in the CENVAT Credit account of M/s. Karamchand Appliances to the Appellant,  prior to such effective date.

Since disputed Credit has not been utilized by the Appellant, the question of its recovery through the impugned proceedings is not in conformity with the statutory provisions. To substantiate the above stand, the Appellant submitted that effective date of transfer would be from June 01, 2005 and not from the date of transfer of shares i.e. May 12, 2005. The Appellant relied on the decision of this Tribunal in the case of Commissioner of Service Tax, Delhi-I vs. ITC Hotels Ltd. reported in 2012 (27) STR 145 (Tri. Delhi).

It was further submitted that Rule 10 of Cenvat Credit Rules nowhere specifies that prior permission is required from the statutory authorities for transferring the CENVAT Credit as a result of merger/amalgamation.

Department Arguments

The Learned Departmental Representative reiterated the findings recorded in the impugned order.

Judgment

After hearing both the side, the Hon’ble Tribunal observed from the available records that the share holdings of M/s. Karamchand Appliances has been transferred to the Appellant on May 12, 2005, but the Scheme of amalgamation was approved by the Hon’ble Delhi High Court vide their order dated October 09, 2006, giving effect to the amalgamation date as June 01, 2005.

Since the Hon’ble High Court has specifically approved the effective date of transfer of ownership as June 01, 2005, the date when mere share holdings were transferred, should not be considered as the effective date for the purpose of transfer of CENVAT Credit.

In this context, this Tribunal in the case of ITC Hotels Ltd. (supra) has held that scheme of amalgamation come into effect only when the same is approved by the High Court and not otherwise.

Since, in the present case, the effective date of the transfer is June 01, 2005, which has been specifically mentioned in the order dated October 09, 2006 of the Hon’ble Delhi High Court, there is no scope of transfer of any CENVAT Credit balance lying in the CENVAT Credit account of M/s. Karamchand Appliances to the Appellant prior to such date.

Non-availability of Cenvat balance in the account prior to June 01, 2005 shows that the same might have been utilised by M/s. Karamchand Appliances for which the Cenvat demand cannot be fastened against the Appellant.

On perusal of Rule 10 of the Cenvat Credit Rules, 2004, it reveals that there is no specific stipulation contained therein that prior permission is required from the statutory authorities for transferring the CENVAT Credit as a result of amalgamation/merger.

In absence of any specific prohibition contained in the statute book, denial of cenvat credit on this ground by the authorities below is not legally sustainable.

In view of the foregoing, the Hon’ble Tribunal did not find any merits in the impugned order passed by the Commissioner (Appeals), and thus, the same set aside and the Appeal was allowed in favour of the Appellant.

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