The Audit Tour
DDT continues with Audit.
Transfer of credit on change in ownership:- The Cenvat Credit Rules and the earlier versions allow transfer of credit balance, when a unit is taken over, sold, amalgamated etc,. The rule nowhere specifies that credit should be allowed only proportionate to the stocks available. But AG doesn’t think so. Essar Steels of Vizag was taken over by Hy-Grade Pellets and an amount of about 40 Lakhs of Modvat credit balance was transferred. AG feels only about 6 Lakhs corresponding to the available stocks should have been allowed to be transferred. The department replied that the rule did not restrict or limit the quantum of credit to the extent of inputs in stock or inputs in process available on the date of transfer.
AG said, “Nothing doing”. His wisdom is,
Reply of the Ministry is not tenable since the relevant provisions, inter-alia, imposed a specific condition in regard to accountal of inputs/capital goods on which credit was availed of by the transferee. Transfer of balances was therefore, required to be restricted only to the extent of inputs in stock/in process actually available on the date of transfer of management and which were eventually accounted for by the transferee.
The Tribunal had in AAR AAY PRODUCTS PVT. LTD. V COMMISSIONER OF CENTRAL EXCISE, NEW DELHI - 2003 (157) E.L.T. 40 (Tri. - Del.) held that transfer of credit should be allowed even if there were no inputs available in balance to be transferred. But what is a mere Tribunal before the mighty wisdom of AG? The AG wants to allow credit only in relation to the stock of inputs physically available. Just imagine a reverse situation. The credit balance available is only Rs. 100/-. But the balance of stock available corresponds to Rs. 10 Lakhs credit. Will Rs. 100 credit be transferred or Rs. 10 Lakhs? No logic with the AG.