2012 (5) TMI 536 - AT - Central Excise

CENVAT Credit - Rebate claim - Before sanctioning of rebate claim merger took place - Held that - there is no dispute that the cenvat credit account was debited at the time of export and in fact the credit could have been allowed as cash refund since the claim related to export in the first place. This was not done. Even otherwise subsequently also since the merged entity is responsible to fulfil all the liabilities of the unit which has merged with it it could not have been deprived of the benefit of cenvat credit which was due to the unit which merged with it. On that ground also invocation of Rule 10 of the Rules cannot be faulted with even though strictly speaking it may not be applicable but that would be taking an entirely different view. Under these circumstances since the adjudicating authority could have sanctioned the refund/rebate in the first place in cash the proposal for rejection of the same upheld by the Commissioner subsequently is not in order. Accordingly the appeal filed by the appellant is allowed and it is held that the appellant unit can take the amount as cenvat credit in the books of account - Decided in favour of assessee.

Issues:
1. Application of Rule 10 of Cenvat Credit Rules, 2004 for allowing credit in a merged unit.
2. Dispute regarding the cenvat credit account debited at the time of export and subsequent allowance of credit.
3. Liability of merged entity for fulfilling obligations of the merged unit.

Analysis:

Issue 1: Application of Rule 10 of Cenvat Credit Rules
The case involved a scenario where the appellant merged their unit with a 100% Export Oriented Unit (EOU) before the rebate claim was sanctioned by the department. The original adjudicating authority allowed the merged unit to take the cenvat credit by invoking Rule 10 of the Cenvat Credit Rules, 2004. However, the Revenue filed an appeal challenging this decision. The impugned order held that Rule 10 was not applicable to the case as the conditions required for its application were not fulfilled. The appellant appealed against this decision.

Issue 2: Dispute over Cenvat Credit Account Debit and Credit Allowance
The judge noted that the cenvat credit account was debited at the time of export, and the credit could have been allowed as cash refund since the claim was related to export. However, this was not done. The judge emphasized that since the merged entity is liable to fulfill all obligations of the merged unit, it should not be deprived of the cenvat credit due to the merged unit. While acknowledging that Rule 10 may not strictly apply, the judge found that the adjudicating authority could have initially sanctioned the refund/rebate in cash. Therefore, the rejection of the proposal to allow credit was deemed inappropriate, and the appellant was allowed to take the amount as cenvat credit in their books of account.

Issue 3: Liability of Merged Entity
The judgment highlighted that the merged entity is responsible for fulfilling all liabilities of the merged unit. Therefore, depriving the merged entity of the cenvat credit due to the merged unit would be unjust. The judge's decision to allow the appellant to take the credit in their books of account was based on the principle that the merged entity should not be unfairly burdened due to the merger.

In conclusion, the appellate tribunal allowed the appellant's appeal, permitting them to take the cenvat credit in their books of account despite the initial rejection by the Commissioner. The judgment emphasized the importance of ensuring fairness and honoring obligations in cases involving mergers and cenvat credit claims.

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