Balance of CENVAT Credit on Shifting of Factory
RULE 10 of the CENVAT Credit Rules states,
"RULE 10. Transfer of CENVAT credit. - (1) If 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 provision for transfer of liabilities of such factory, then, the manufacturer shall be allowed to transfer the CENVAT credit lying unutilized in his accounts to such transferred, sold, merged, leased or amalgamated factory."
Though the rule appears to be quite clear, the Department had no doubt that credit can be carried forward by a unit only in the event of amalgamation or merger. Revenue denied the credit on the ground that Rule 10 of the CENVAT Credit Rules, 2004 does not permit a shifting unit which closes its business to claim unutilized CENVAT credit consequent upon shifting.
This was the issue before the CESTAT recently.
The CESTAT observed,
Bare perusal of sub-rule (1) of Rule 10 above throws light that while legislature contemplated that sale, merger, amalgamation, lease or transfer of a factory entitles the sold, merged, leased or amalgamated factory to avail the unutilized CENVAT credit lying in their account prior to such event, a shifted factory also stands in similar footing to avail such benefit.
Absence of the word "shifted" in the said sub-rule appears to be an inadvertence which does not lead to construe the provision therein to be denial proposition of law to grant the benefit of unutilized credit to a shifted factory. When the legislature has used the word "shifts" in the first part of the sentence in Rule 10(1), the word "shifted" may be construed to be a necessary implication thereof for the purpose of that rule in absence of any specific denial intention. Therefore, the said such Rule does not call for an interpretation in a pedantic manner.
It is well settled that law is to be interpreted in a manner to make that workable without creating any absurdity or ambiguity. Therefore, a shifted unit if dealt discriminately under Rule 10(1) of CENVAT credit Rules, 2004, use of the word "shifts" in the beginning part of the said sub-rule shall be otiose.
The CESTAT had a suggestion for the Department: take up the matter with the Government for appropriate legislative measure in sub-rule (1) of Rule 10 of CENVAT Credit Rules, 2004 to achieve the legislative mandate of shifting of a factory for any internal, external or statutory reasons.
Please see Breaking News for the case.