2015 (5) TMI 1010 - AT - Central Excise

Modvat and Cenvat credits reversed (paid back) - value of inputs lying in the factory were reduced for the relevant financial years while preparing Annual Balance Sheets - Demand for Central Excise duty in respect of inputs written off in Annual Balance Sheets - Held that - Prior to amendment of Rule 5B of the Cenvat Credit Rules on 11-5-2007 there was no provision requiring reversal of the credit when the inputs were partially or fully written off but no removal. In view of the precedent decision cited by learned counsel and also other submissions which were made we find that this demand is not sustainable and accordingly is set aside. - Decided in favour of assessee Demand on the ground that the appellant failed to account for 504 Nos. of personal computers - 504 Nos. of personal computers recorded excess in their annual accounts than RG 1 Register were not accounted - Held that - Learned counsel however could not explain as to why there was an observation about excess recording in the Annual Balance Sheet and why no reconciliation statement was submitted and copy of the relevant registers were also not provided. Even though it is more than 16 years and even now the appellant did not have all the details. - Decided against assessee. Demand on OMC computer systems supplied against order of the Department of Telecommunication (DOT) Government of India - Held that - The appellant claimed that they could explain the payment of differential duty in respect of each and every clearance. However this submission is not supported by records. Therefore we are unable to consider this submission also favourably.In view of the above the appellant failed to make out a case as regards of demands - Decided against assessee.

Summary

Issues Involved:
1. Demand for Central Excise duty on inputs written off in Annual Balance Sheets.
2. Interpretation of Accounting Standard No. 2 and Companies Act provisions.
3. Application of Modvat and Cenvat credits.
4. Reversal of credit on reduced values of inputs.
5. Circulars issued by the C.B.E. & C.
6. Precedent decision regarding reversal of credit.
7. Failure to account for personal computers in annual accounts.
8. Duty demand on computer systems supplied against DOT order.
9. Reimbursement of differential duty payments.
10. Upholding or setting aside of demands and penalties.

Analysis:

1. The judgment concerns a demand for Central Excise duty on inputs written off in Annual Balance Sheets, confirmed in the Order-in-Original. The period involved spans from 1988 to 2004, with no penalty levied on the amount. The issue revolves around the reversal of Modvat and Cenvat credits based on reduced values of inputs, as per Accounting Standard No. 2 and Companies Act provisions.

2. The appellant argued that the reduction of values in the Annual Balance Sheets does not affect the utility of the goods as inputs for final products. They contended that duty cannot be demanded on inputs available in the factory, emphasizing that the values were reduced for accounting purposes and not due to loss of utility. The appellant also highlighted the absence of clearances of input goods, negating the incidence of duty.

3. The appellant further challenged the applicability of Modvat and Cenvat provisions, asserting that these schemes pertain to cleared goods, which is not the case here. They argued against the recovery of credits based on reduced values, citing the long-standing practice of reducing values annually as per AS-2 and Companies Act provisions.

4. The Tribunal found merit in the appellant's arguments, noting that prior to the 2007 amendment, there was no requirement to reverse credits when inputs were partially or fully written off but not removed. Citing a precedent decision and submissions made, the Tribunal deemed the demand unsustainable and set it aside.

5. Additionally, the judgment addressed two other demands: one related to unaccounted personal computers and the other concerning duty on computer systems supplied against a government order. The Tribunal upheld the demands and corresponding penalties in these cases due to insufficient evidence and explanations provided by the appellant.

6. Ultimately, the Tribunal set aside the demand for Central Excise duty on inputs written off in Annual Balance Sheets while upholding the demands and penalties for the remaining amounts. The appeal was disposed of accordingly, with the operative portion of the order pronounced in open court on 27-5-2015.