Vodafone need not reverse Cenvat Credit on transfer of Capital Goods to Its Sister Concern: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), while allowing an appeal filed by telecom giant, Vodafone, held that the Company need not reverse the Cenvat Credit availed by them while transferring capital goods to their sister concern.

The appellant, M/s Vodafone Mobile Services Limited, a service provider of telecommunication service, has procured optical cables which were to be laid down. Later, the appellants transferred some of the unused optical fibre cable to their sister unit.

The department took a stand that as the said capital goods has been transferred to their sister unit therefore, in terms of Rule 3(5) of Cenvat Credit Rules, 2004 the appellant is required to reverse the Cenvat credit availed on said capital goods.

Before the Tribunal, the assessee relying on several judicial decisions, contended that as these capital goods has been transferred to their sister unit, therefore, it is a case of Revenue neutrality and no need to reverse Cenvat Credit.

After hearing both the sides, the CESTAT bench found that the provisions of Rule 3 (5) are not attracted in the present case.

“The original authority’s attempt to distinguish the above findings is not appropriate. He found that these decisions are regarding change of ownership of whole factory whereas here only a part of the factory is transferred. We find such finding as untenable. Further, regarding question of issue of invoice by the appellant for sale and transfer of capital goods and inputs to the new legal entity, we find on perusal of sample invoice that these are not invoices in terms of Rule 11 of Central Excise Rules, 2002.”

The bench further noted that based on these invoices no credit can be availed by any buyer as these are not in terms of Rule 9 of Cenvat Credit Rules, 2004. “In view of settled legal position regarding need for physical removal of capital goods or inputs, in order to attract the provisions of Rule 3 (5) of Cenvat Credit Rules, 2004, we find that there is no justification to invoke such provision to demand and recover any amount from the appellant in this case.”