2025 (5) TMI 1906 - AT - Central Excise

Utilization of CENVAT Credit - Department entertained a view that in view of the name change the appellants are not entitled to utilize the credit lying in the records - disallowance of credit on the ground that there was no stock of inputs and as such requirement of 10(1) 10(3) of the CENVAT Credit Rules 2004 was not fulfilled - HELD THAT - On going through the provisions of Rule 10 it is apparent that the said Rule is applicable only in the cases where a manufacturer of the final products shifts his factory to another site or the factory is transferred on account of change in ownership or on account of sale merger amalgamation lease or transfer of the factory to a joint venture with the specific provisions for transfer of liabilities of such factory. It is found that the case of the appellant is of a simple change of name which is not disputed by the Department. The appellant submits that they have got the name changed from M/s TDT Copper Limited to M/s Alchemist Metal Limited w.e.f. 06.11.2009. On the advice of the Department they have got the registration changed in the name of M/s Alchemist Metal Limited. The Authorized Representative for the Revenue argues that the letter which the appellant claims to have been received by them advising them to change the registration certificate is not on record. On going through the record of the case that the Revenue vide letter dated 23.12.2009 put the appellants to notice that the registration number of TDT obtained in 1999 was not issued by them. The impugned orders rely on contradictory assumptions that the appellants were not given registration in 1999 and that they have surrendered their registration on their volition in 2009. It is apparent from the records of the case that the appellants vide letter dated 18.12.1999 have applied for the registration in the name of TDT; therefore even if the registration in the name of TDT has not been given though applied for it can be understood that such registration is either accorded or deemed to have been accorded - the argument of the Department that the registration was not issued in 1999 does not appear to be correct. It is not the case of the department that the appellant has taken ineligible CENVAT Credit either by not receiving the inputs or by diverting the same after receipt or by claiming the same suddenly after considerable lapse of time. The fact that Credit lying in balance as on 2003 is not disputed; the claim of the appellants that the unit was closed for 4/5 years is not controverted. The substantial benefit of CENVAT Credit cannot be denied for procedural Lapses if any though it is found that none in the instant case. It being so no case is made out for denying the credit to the appellants. Conclusion - The impugned orders have been passed invoking Rule 10 of CENVAT Credit Rules 2004 the case of the appellant is not that of change of ownership or transfer of factory; to that extent the provisions of Rule 10 are not applicable. The impugned orders do not deny the credit on any other ground. Appeal allowed.

Summary

The core legal questions considered in this judgment are:

1. Whether a change in the name of a company, without any change in ownership, management, or location of the factory, entitles the company to transfer and continue to utilize the unutilized CENVAT credit lying in the name of the earlier company.

2. Whether the provisions of Rule 10 of the CENVAT Credit Rules, 2004, which govern the transfer of CENVAT credit on shifting or transfer of factory/business on account of change in ownership, sale, merger, amalgamation, lease, or transfer to a joint venture, apply in the case of a mere change of company name.

3. Whether the appellant complied with the procedural requirements under the Companies Act, 1956, and the Central Excise registration process in effecting the change of name and informing the department.

4. Whether the appellant was denied natural justice in the disallowance of the credit by the Assistant Commissioner without adequate opportunity to present submissions and produce evidence.

5. Whether the absence of physical stock of inputs at the premises, given that the unit was closed for 4-5 years, justifies disallowance of the unutilized CENVAT credit claimed by the appellant.

6. The applicability and relevance of precedents cited by the appellant regarding transfer of CENVAT credit in cases of change of name or transfer of business.

Issue-wise Detailed Analysis

Issue 1 & 2: Entitlement to transfer CENVAT credit on change of company name and applicability of Rule 10 CENVAT Credit Rules, 2004

The legal framework involves Rule 10 of the CENVAT Credit Rules, 2004, which permits transfer of unutilized CENVAT credit only if the manufacturer shifts his factory to another site or the factory is transferred due to change in ownership, sale, merger, amalgamation, lease, or transfer to a joint venture, with specific provisions for transfer of liabilities. Sub-rule (3) further mandates that the stock of inputs or capital goods on which credit is claimed must be transferred and accounted for to the satisfaction of the proper officer.

The Court interpreted these provisions strictly, holding that Rule 10 is not applicable to a mere change of name without change in ownership or factory location. The appellant contended that only the name changed from M/s TDT Copper Ltd to M/s Alchemist Metals Ltd, with no sale, transfer, or shifting of the unit, and thus Rule 10 should not apply. The Revenue argued that since the appellant claimed transfer of credit under Rule 10, the conditions of physical stock transfer and accounting must be satisfied.

Key findings included the fact that the appellant's unit was closed for 4-5 years with no physical stock of inputs found on verification, although capital goods were accounted for. The Court noted that the appellant had been regularly filing ER-1 returns under both names and that the credit was originally availed during the period when the unit was operational.

The Court concluded that Rule 10 does not apply to a simple change of name and that the appellant's entitlement to credit should not be denied on that basis. The transfer provisions are designed for changes involving ownership or physical transfer of the factory/business, not nominal changes in company name.

Issue 3: Compliance with procedural requirements under Companies Act and Central Excise registration

The Revenue raised objections that the appellant had not placed on record documentary proof of change of name under the Companies Act or change of PAN and had not requested change of name in the Central Excise registration certificate. The appellant produced the Registrar of Companies certificate evidencing the change of name effective 06.11.2009 and again in 2011 back to the original name.

The Court found that the Revenue's contention that registration was not issued in 1999 was contradicted by the appellant's continuous filing of ER-1 returns and correspondence. The appellant's inability to produce the original registration certificate was not fatal, as the registration number and PAN remained consistent. The Court held that procedural lapses, if any, did not affect the substantive right to credit.

Issue 4: Alleged denial of natural justice

The Revenue submitted that the appellant was given sufficient opportunity to produce documents and make submissions, as evidenced by multiple departmental letters requesting invoices and clarifications. The appellant contended otherwise, but the Court found no merit in the claim of violation of natural justice, given the correspondence and hearings documented.

Issue 5: Absence of physical stock of inputs and closure of unit

The Assistant Commissioner disallowed credit of Rs. 1,12,75,180 on inputs due to absence of physical stock and the unit being closed for 4-5 years, while allowing credit on capital goods. The Court noted that the appellant had not disputed closure but emphasized that the credit was availed legitimately during the operational period and that the unit's closure did not negate the right to credit on inputs already utilized.

The Court distinguished the facts from precedents where physical stock was transferred or the unit was operational at transfer. Here, the closure and absence of stock were factual realities, but did not justify denial of credit on inputs already used in manufacture.

Issue 6: Applicability of precedents cited by appellant

The appellant relied on decisions in Sri Varahi Amman Steels (P) Ltd and Dow Agro Sciences India (P) Ltd, among others, which supported transfer of credit on name change or merger scenarios. The Revenue contended these cases related to Central Excise Rules, 1944, and were not applicable under the CENVAT Credit Rules, 2004.

The Court examined these precedents and found them relevant on the principle that mere change of name does not disentitle a company from utilizing credit legitimately availed. The Court rejected the Revenue's narrow reading and held that the precedents support the appellant's position.

Application of Law to Facts and Treatment of Competing Arguments

The Court balanced the Revenue's strict procedural and literal interpretation of Rule 10 with the appellant's substantive rights arising from continuous registration, filing of returns, and legitimate credit availed during operational years. It found the Revenue's reliance on absence of physical stock and procedural irregularities insufficient to deny credit in a case of pure name change without ownership or factory transfer.

The Court also noted contradictions in the Revenue's position regarding registration issuance and surrender, which weakened their case. The appellant's evidence of name change and continuous filing was accepted as credible and sufficient.

Conclusions

The Court held that the appellants were entitled to the transfer and utilization of the unutilized CENVAT credit despite the change in the company's name. Rule 10 of the CENVAT Credit Rules, 2004, was not applicable to a mere change of name without transfer of ownership or factory. Procedural lapses, if any, were not fatal to the substantive right to credit. The denial of credit on the ground of absence of physical stock and closure of the unit was not sustainable. The impugned orders disallowing credit were set aside, and the appeal was allowed.

Significant Holdings

"Rule 10 of the CENVAT Credit Rules, 2004 is applicable only in the cases where a manufacturer of the final products shifts his factory to another site or the factory is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory to a joint venture with the specific provisions for transfer of liabilities of such factory."

"The case of the appellant is of a simple change of name which is not disputed by the Department... Therefore, there should not be any objection in the availment of credit, on the inputs purchased and utilized by M/s TDT Copper."

"Substantial benefit of CENVAT Credit cannot be denied for procedural lapses, if any, though we find none in the instant case."

"The impugned orders have been passed invoking Rule 10 of CENVAT Credit Rules, 2004; as discussed above, the case of the appellant is not that of change of ownership or transfer of factory; to that extent, the provisions of Rule 10 are not applicable."

"The cases relied upon by the appellants, particularly, the cases of Dow Agro Sciences India (P) Ltd and Sri Varahi Amman Steels (P) Ltd, are squarely applicable, being directly on the issue."

"The denial of credit on the ground of absence of physical stock and closure of the unit was not sustainable."