2017 (2) TMI 60 - AT - Central Excise

Reversal of Cenvat Credit - Write off of certain slow and non-moving stock of raw materials and finished goods - recovery of credit involved on these goods on the ground that when such value of inputs or capital goods, on which cenvat credit has been taken, have been written off from the books of accounts fully or partially, then an amount equal to the cenvat credit in respect of such goods is required to be paid by the appellant - demand of interest and penalty - Held that - It is not disputed that period of dispute is prior to 1.3.2011. It is also seen that balance sheet entries clearly indicate provision has been made for slow moving items, doubtful items and not as items fully written off. This being the case, the entry in question will have to be considered as partial write off only and not as an entry for full write off. For the period prior to 1.3.2011, provision has been made for payment of equal amount of cenvat credit of value of inputs or capital goods only pertaining to those which were written off fully. Only after 1.3.2011, payment has been required in respect of both partial write off or full write off. Recovery of appropriate interest is restricted to ₹ 8,70,183/- only. Penalty imposed under Section 15 of CCR 2004 read with Section 11AC ibid is set aside - appeal disposed off - decided partially in favor of assessee.

Issues: Recovery of cenvat credit on written-off stock, Penalty under Rule 15 of Cenvat Credit Rules, 2004, Interpretation of balance sheet entries pre and post 1.3.2011.

Analysis:
1. The case involved the recovery of cenvat credit on written-off stock of raw materials and finished goods by the appellants, amounting to ?88,94,158/- as per their Balance Sheet for the years 2009-10, 2010-11, and 2011-12. The Department proposed a recovery of ?9,16,098/- on the grounds that when goods on which cenvat credit has been taken are written off from the books fully or partially, an amount equal to the cenvat credit needs to be paid by the appellant.

2. The original authority confirmed the Department's proposal and imposed a penalty of ?9,16,098/- under Rule 15 of Cenvat Credit Rules, 2004. On appeal, the Commissioner (Appeals) upheld the lower authority's decision, leading to the current appeal before the Tribunal.

3. During the hearing, the appellant submitted relevant balance sheet entries, indicating that provisions were made only for doubtful or slow-moving items, not for items fully written off. The appellant argued that as per the provisions before 1.3.2011, they were not obligated to pay an amount equal to the cenvat credit taken on such goods.

4. The Revenue contended that the provision for slow-moving items in the balance sheet should be considered as a full credit amount, as indicated in the trial balance sheet submitted by the appellant. The Tribunal heard arguments from both sides and noted that the dispute period was before 1.3.2011.

5. The Tribunal observed that the balance sheet entries clearly showed provisions made for slow-moving and doubtful items, not for items fully written off. Therefore, the entry in question was considered a partial write-off, in line with the provisions before 1.3.2011. It was clarified that payment was required only for goods fully written off before that date.

6. The Tribunal found that the appellants had accepted the Department's view and reversed an amount of ?8,70,183/-, with the remaining amount not reversed due to the subsequent use of some of the slow-moving inputs. The penalty imposed under Rule 15 of Cenvat Credit Rules, 2004, along with Section 11AC of the Central Excise Act, 1944, was deemed unsustainable and set aside.

7. Consequently, the recovery of appropriate interest was restricted to ?8,70,183/- only, and the penalty imposed under Section 15 of Cenvat Credit Rules, 2004, was also set aside. The appeal was partially allowed in favor of the appellants, based on the interpretation of the balance sheet entries and the relevant legal provisions.

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