2017 (5) TMI 813 - AT - Central Excise

Reversal of CENVAT credit - inputs written off - Revenue s case is that the written off unit as recorded is actually removal of inputs as such - Held that - Once it is recognized and established that the inputs have been put to intended purpose, it is not relevant whether some of them get damaged or rejected during the course of manufacture. Such damaged input/rejection resulting in scrapping of such inputs will have no impact on the credit availed on them - In the present case, admittedly, the appellant written off the full value of some of the inputs stating that these are material loss of bought out items, which are rejected/scrapped. The accounts maintained by the appellant to this effect is the sole basis for proceedings against them. There is no other evidence to allege that the inputs on which credit has been availed were in fact cleared as such. The credit on inputs, which are rejected during the course of manufacture (line rejections) cannot be denied as they are already put in the process of manufacture is already held in many cases earlier. Denial of credit not justified - appeal allowed - decided in favor of appellant.

Summary

Issues:
Dispute over reversal of credit on inputs cleared without use in manufacturing process and shown as "written off" in accounts.

Analysis:
The appellants, engaged in manufacturing motor vehicles and parts, availed credit of duty paid on inputs under Cenvat Credit Rules, 2004/Central Excise Rules, 1944. Revenue alleged that inputs shown as "written off" in accounts were not used in manufacturing, leading to proceedings for recovery of credit availed. Original Authorities confirmed the recovery amounts and imposed penalties. Commissioner (Appeals) upheld the reversal of credit. Appellants contested liability to reverse credit, explaining that rejected/damaged inputs were accounted for as "written off" due to manufacturing process issues.

The dispute centered on whether inputs were used for intended purpose, regardless of subsequent damage or rejection during manufacturing. Appellants argued that rejected inputs were part of the manufacturing process and not indicative of clearance as such. The Tribunal examined the accounting process, noting that rejected inputs were reported, accounted for, and "written off" as per standard procedures. The Tribunal emphasized that the eligibility of credit on inputs used for intended purpose should not be questioned due to subsequent damage/rejection during manufacturing.

Referring to past Tribunal decisions, the Tribunal held that credit on rejected inputs during manufacturing cannot be denied as they were part of the manufacturing process. Revenue's argument on non-maintenance of records to establish line rejections was refuted, as the appellant's accounting flow demonstrated the rejection of inputs on the shop floor. The Tribunal concluded that the denial of credit was unjustifiable and set aside the impugned orders, allowing the appeals.

In summary, the Tribunal ruled in favor of the appellants, emphasizing that rejected/damaged inputs accounted for as "written off" in the manufacturing process do not warrant reversal of credit if they were initially used for intended purpose. The decision highlighted the importance of accounting practices and established legal principles in determining credit eligibility on inputs used in manufacturing processes.