2013 (2) TMI 545 - AT - Central Excise

Waiver of Pre-deposit - CENVAT credit on inputs written off fully or partially - Rule 3(5B) of CENVAT Credit Rules - Held that - Making provision in the manner the assessee as done appears to be a first step towards write off of slow moving items and that the step appears to be reversible due to fresh order. The excess inventory noticed at a particular point of time could be tackled by lowering the procurement. Substantial quantities which were moved into the reserve category for which provisions were made were dereserved in the subsequent months. Therefore, prima facie, we cannot treat the inputs and the value of inputs as written off in the books of accounts. Waive pre-deposit - Stay granted

Summary

Issues:
1. Whether provision for moving items to reserve category constitutes write off under Rule 3(5B) of CENVAT Credit Rules.
2. Whether the demand for payment along with interest and penalties is sustainable based on the provision made for reserve category.
3. Whether the appellant has made out a prima facie case for waiver of the balance of dues.

Analysis:
1. The appellant had created a reserve for slow-moving inventory and excess inventory, following their corporate policy. The issue arose when a show-cause notice alleged that moving items to the reserve category constituted write off, invoking Rule 3(5B) of CENVAT Credit Rules. The appellant argued that substantial goods were dereserved and put to use, with only a small portion remaining unused. The appellant contended that the presumption of goods being written off was erroneous as the items were mostly usable, leading to the demand being unsustainable.

2. The original authority confirmed the demand proposed in the show-cause notice and imposed penalties based on the provision made for the reserve category. The Commissioner and the learned Commissioner (AR) supported this decision, asserting that since a provision was made, it was inferred that the goods and their value were written off, justifying the invocation of Rule 3(5B). However, upon careful consideration, the Tribunal found that the provision made by the appellant was a preliminary step towards a potential write off, subject to future orders, and that substantial quantities moved to the reserve category were later dereserved, indicating reversibility.

3. The Tribunal, after evaluating submissions from both sides and reviewing the records, concluded that the inputs and their value were not written off in the books of accounts. The Tribunal held that the appellant had established a prima facie case for waiver of the balance of dues, as per the impugned order. Consequently, the Tribunal waived the predeposit of the balance of dues and stayed the recovery until the appeal's disposal, recognizing that the provision made did not amount to a definitive write off, but rather a reversible step in managing slow-moving and excess inventory.

This detailed analysis of the judgment highlights the interpretation of the provision for reserve category, the sustainability of the demand based on such provision, and the establishment of a prima facie case for waiver of dues by the appellant.