By TIOL News Service

MUMBAI, FEB 25, 2014: THE appellant sold their unit to Exide on 16.02.1998/29.04.1998 with a condition that any liability towards excise duties shall be borne by the appellant. The appellant filed an application for transfer of credit lying in their MODVAT credit account attributable to inputs and capital goods, unutilized by them, to Exide. The said credit was denied by the lower authorities and, therefore, the appellant is before the CESTAT.

It is submitted that as per Rule 57F(20) and Rule 57S(5) of the CER, 1944, on there being change of ownership, the MODVAT credit attributable to inputs can be transferred to the buyer of the unit irrespective of the clause that liabilities towards Central Excise payments are transferred or not. Reliance is inter alia placed on the decision in the case of Mohd. Shabbier Vs. State of Maharashtra - 1979 AIR 564.

The Revenue representative reiterated the findings of the lower authorities.

The Bench extracted the provisions of rule 57F(20) of the CER, 1944 and observed -

"7. As per the said Rule, the credit can be transferred on account of shifting of factory, belonging to the manufacturer, to another site, or on account of change of ownership or change in the site of a factory resulting from sale, merger, amalgamation or transfer to a joint venture with the specific provision for transfer of liabilities of the old factory, to transfer such unutilized credit to such transferred, sold, merged or amalgamated factory. From the plain reading of the above said provisions, the condition of the transfer liability is applicable to change in site of the factory resulting from sale, merger, amalgamation or transfer to a joint venture. Admittedly, in this case, the factory has not been shifted to anywhere but only the ownership has been changed. Therefore, the clause of transfer liability is not applicable to the facts of this case. Therefore, as observed by the Hon'ble Apex Court in the case of Mohd. Shabbir (supra), the word change of ownership ‘or' change of site cannot be read altogether. Accordingly, the condition of transfer of liability is not applicable to transfer of ownership."

As regards the allegation of non-compliance of provisions of Rule 57S(5), the Bench noted that the appellant had produced a letter filed by them requesting for transfer of the ownership of the factory along with the details of inputs and capital goods lying unutilized in their account but the said documents had not been appreciated by the lower authorities.

In the matter of a demand which was confirmed against the appellant and which was mentioned in the adjudication order, the Bench noted that the appellant had written to the authorities for adjustment of the said demand from the MODVAT credit lying unutilized.

Therefore, the Bench held -

"…Therefore, I hold that the CENVAT credit lying unutilized is required to be allowed to transfer of inputs and capital goods to 'Exide' after deducting the outstanding amount payable by the appellant. The amount payable by the appellant is to be adjusted first before allowing the said unutilized CENVAT credit on account of inputs and capital goods."

With these terms, the appeal was disposed of by way of remand.

(See 2014-TIOL-297-CESTAT-MUM)