2012 (7) TMI 821 - AT - Central Excise

Reversal of CENVAT Credit - Value partly written off in books of accounts - Held that - prior to 01/03/2011, a manufacturer of final product who availed CENVAT credit on inputs was not required to reverse any part of that credit on the ground of a part of the value of the inputs being written off the books of accounts. Only cases of writing off the full value of the inputs on which CENVAT credit had been availed called for reversal of the credit. The present one is not such a case. It is also pertinent to note that the Department has no case that the amendment dt. 01/03/2011 has retrospective effect - Decided in favour of assessee.

Summary

Issues:
1. Reversal of CENVAT credit on inputs partially written off the books of accounts.
2. Interpretation of Rule 3(5B) of the CENVAT Credit Rules, 2004.
3. Applicability of the requirement of reversal of CENVAT credit before and after 01/03/2011.

Analysis:

1. The primary issue in this case revolves around the reversal of CENVAT credit on inputs that were partially written off the books of accounts by the appellant between April 2004 and March 2009. The lower authorities had directed the appellant to reverse the credit, leading to the dispute. The appellant argued that the relevant rule, Rule 3(5B) of the CENVAT Credit Rules, 2004, did not mandate such reversal for partial write-offs during the mentioned period. The appellant contended that under the rule, only full write-offs required credit reversal, not partial write-offs.

2. The interpretation of Rule 3(5B) of the CENVAT Credit Rules, 2004, was crucial in determining the outcome of the case. The rule, as it stood before 01/03/2011, explicitly stated that if the value of an input on which CENVAT credit was taken is written off fully, the manufacturer must pay an amount equivalent to the credit taken. However, there was no provision for partial write-offs necessitating credit reversal during that period. The appellant successfully argued that the rule did not require reversal for partial write-offs before the amendment in 2011.

3. The case also delved into the applicability of the requirement of reversal of CENVAT credit before and after 01/03/2011. The amendment to Rule 3(5B) on 01/03/2011 introduced the provision for reversal in cases of partial write-offs, in addition to full write-offs. However, it was crucial to note that the Department did not claim retrospective effect for the amendment. Consequently, the Tribunal held that prior to 01/03/2011, manufacturers were not obligated to reverse any part of the CENVAT credit for inputs partially written off, as in the appellant's case, leading to the setting aside of the impugned order and allowing the appeal.

In conclusion, the judgment clarified the interpretation of Rule 3(5B) of the CENVAT Credit Rules, 2004, regarding the reversal of CENVAT credit on inputs partially written off the books of accounts, emphasizing the distinction between full and partial write-offs and the non-retrospective nature of the relevant amendment.