2015 (8) TMI 1334 - AT - Central Excise

Demand - Penalty - Reversal of CENVAT credit - Slow moving stock - Notification No.26/2007-CE(NT) dated 11.05.2007 - The credit availed by the appellant was in accordance with the CENVAT statute and in absence of any specific provision requiring the appellant to reverse the credit availed on the inputs confirmation of duty demand is against the principles of law - Since there is no provision existed in the CENVAT Credit Rules for reversal of CENVAT credit at the material time reversal of credit cannot be insisted relying upon the circular issued by CBEC - Appeal allowed.

Summary

Issues:
- Duty demand confirmation under Section 11A of the Central Excise Act, 1944
- Imposition of penalty under Section 11AC of the Central Excise Act, 1944
- Requirement of reversal of CENVAT credit on inputs written off in the books of accounts

Analysis:
1. Duty Demand Confirmation under Section 11A:
The appeal challenged the order confirming duty demand of Rs. 25,43,035 under Section 11A of the Central Excise Act, 1944. The appellant, engaged in manufacturing motor vehicle parts, availed CENVAT credit on inputs, services, and capital goods. The Central Excise Department observed that the appellant had written off inputs due to obsolescence without reversing the CENVAT credit availed. The duty demand was upheld by the Commissioner (Appeals) based on CBEC Circulars. However, the Tribunal noted that the appellant availed credit in accordance with CENVAT rules, and since there was no specific provision mandating reversal of credit on written-off inputs during the relevant period, the confirmation of duty demand was deemed against legal principles.

2. Imposition of Penalty under Section 11AC:
Along with the duty demand confirmation, an equal amount of penalty was imposed under Section 11AC of the Central Excise Act, 1944. The Tribunal's decision to set aside the duty demand confirmation also nullified the imposition of the penalty, as the basis for penalty imposition was the same as that for the duty demand. The absence of a legal requirement to reverse the CENVAT credit on written-off inputs during the relevant period led to the conclusion that the penalty imposition was not justified.

3. Requirement of Reversal of CENVAT Credit on Inputs:
The core issue in the appeal revolved around the necessity to reverse CENVAT credit on inputs written off in the books of accounts. The appellant argued that without a specific statutory provision mandating such reversal, the CBEC could not create an embargo on utilizing inputs physically present in the factory for manufacturing final products. The appellant cited relevant judgments to support this stance, emphasizing the absence of a legal requirement for credit reversal during the period in question. The Tribunal concurred with this argument, highlighting that the CENVAT Credit Rules did not contain a provision for reversing credit on written-off inputs at the material time. The Tribunal's decision was reinforced by the Gujarat High Court's judgment, which emphasized that reversal of credit without statutory provisions was unwarranted, especially when the goods were still usable in manufacturing activities.

In conclusion, the Tribunal set aside the impugned order confirming duty demand and penalty imposition, ruling in favor of the appellant due to the absence of a legal mandate for reversing CENVAT credit on inputs written off in the books of accounts during the relevant period.