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2016 (11) TMI 1284 - AT - Central ExciseReversal of CENVAT credit - Rule 3(5B) of the Cenvat Credit Rules, 2004 - availing credit without paying duty to the supplier - amount booked as extraordinary income - Held that - The appellants having decided not to make payment to the vendors, for whatever reason that may be, it is equal to a situation of writing off the inputs especially when they have accounted the amount as extra-ordinary income . This income amount includes the duty portion of the goods also. Therefore, appellant ought to have reversed the credit along with interest as they have not paid the duty on the goods. The facts reveal that the appellant have attempted to avail credit without paying duty in the guise of accounting the same as extra ordinary income . The availment of credit without paying duty on the goods has resulted in a situation of loss of revenue. The facts of the case present an isolated situation and the contention of the appellant that writing off of the dues to the vendor is not the same as writing off of inputs and that Rule 3(5B) is not applicable is not tenable. Circular No.877/15/2008-CX dated 17-11-2008 regarding reversal of Cenvat credit in the case of trade discount, and therefore, is not at all applicable. Be that as it may, the circular clarifies that by way of discount if price is reduced and consequently duty is also reduced, the reduced excise duty only will be available as credit. In the present case, the appellant not having paid the duty, the credit cannot be availed at all. Appeal dismissed - decided against appellant.
Issues:
- Reversal of Cenvat credit on inputs written off as extraordinary income - Interpretation of Rule 3(5B) of the Cenvat Credit Rules, 2004 - Applicability of Cenvat credit scheme when duty on goods is not paid - Decision on whether the appellant should reverse the credit along with interest - Analysis of the circular No.877/15/2008-CX dated 17-11-2008 Issue 1: Reversal of Cenvat credit on inputs written off as extraordinary income The appellants, manufacturers of sugar confectionery and Ayurvedic Medicaments, had accounted for an amount as "extraordinary income" by writing off dues to vendors/suppliers. The department viewed this as writing off Cenvat credit availed on inputs, demanding reversal under Rule 3(5B) of the Cenvat Credit Rules, 2004. The dispute arose from the appellants' decision not to pay vendors due to inferior quality supplies, leading to the write-off. The appellants argued that writing off dues is distinct from writing off inputs, supported by a Chartered Accountant's certificate confirming the physical availability of goods. However, the tribunal found that the appellants' decision not to pay vendors equated to writing off inputs, necessitating credit reversal. Issue 2: Interpretation of Rule 3(5B) of the Cenvat Credit Rules, 2004 Rule 3(5B) mandates the reversal of Cenvat credit if inputs on which credit was taken are fully written off in the books. The tribunal determined that the appellants' accounting of dues as extraordinary income reflected a situation akin to writing off inputs, triggering the rule's application. Despite the appellants' argument that the goods were physically available and only dues were written off, the tribunal held that the duty on goods remained unpaid, rendering the credit inadmissible. Issue 3: Applicability of Cenvat credit scheme when duty on goods is not paid The tribunal emphasized that the Cenvat credit scheme applies only when duty on goods is paid. In this case, since the appellants did not pay vendors or duty on goods, they were ineligible to claim credit. The tribunal highlighted that the appellants' decision not to pay vendors amounted to a situation of writing off inputs, including duty portions, justifying the reversal of credit. Issue 4: Decision on whether the appellant should reverse the credit along with interest The tribunal concluded that the appellants' accounting of dues as extraordinary income without paying vendors or duty on goods necessitated the reversal of credit along with interest. The tribunal rejected the appellants' argument that the situation did not warrant credit reversal, emphasizing that the duty must be paid for credit eligibility. Issue 5: Analysis of circular No.877/15/2008-CX dated 17-11-2008 The tribunal dismissed the appellant's reliance on circular No.877/15/2008-CX, clarifying that it pertained to trade discounts and was inapplicable to the present case. The circular specified that reduced excise duty could be credited only if the duty was paid, which was not the case for the appellants. Therefore, the tribunal upheld the decision to dismiss the appeal based on the circumstances and legal provisions discussed. This detailed analysis of the judgment highlights the key issues, interpretations of relevant rules, and the tribunal's decision on each aspect of the case.
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