2017 (11) TMI 1175 - AT - Central Excise

Reversal of CENVAT credit - inputs written off - clearance of inputs without use in the manufacturing process - whether write off of inputs on account of damage or become unfit during the course of manufacture, can be equated to clearance of inputs as such and no reversal of credit is warranted in such situation? - Held that - identical issue decided in assessee s own case Force Motors Ltd. Versus CC, CCE & ST, Indore 2017 (5) TMI 813 - CESTAT NEW DELHI , where it was 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 - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against order of Commissioner (Appeals) regarding reversal of credit on inputs cleared without use in manufacturing process and shown as "written off."

Analysis:
The appellants, engaged in manufacturing motor vehicles, availed credit of duty paid on inputs under Cenvat Credit Rules, 2004. The dispute arose when the Revenue claimed the appellants had cleared inputs without use in manufacturing process and shown them as "written off" in their accounts. The Revenue initiated proceedings for recovery of the credit availed on these inputs, leading to various show cause notices issued covering a significant period. Original Authorities confirmed the amounts to be recovered and imposed penalties. On appeal, the Commissioner (Appeals) upheld the reversal of credit as ordered by the Original Authority, resulting in the filing of present appeals.

The appellants contended that inputs not meeting standards were returned, and rejected inputs were accounted for as "written off" due to damage or being unfit during manufacturing. They argued that inputs used for intended purpose of manufacture should not require credit reversal if rejected due to technical reasons during the manufacturing process. The appellants maintained that their accounting system accurately recorded rejected inputs and scrap values, essential for their manufacturing process involving numerous components.

The Revenue argued that complete write-off of input values indicated non-use in the manufacturing process, requiring the appellants to prove that rejected inputs were damaged during manufacturing. Referring to a Board's Circular, the Revenue claimed that inputs written off in accounts were not eligible for credit. However, the Tribunal, considering previous decisions and the appellants' accounting process, found no justification for denial of credit. The Tribunal emphasized that rejected inputs during manufacturing, resulting in scrapping, should not lead to credit denial as these inputs were initially put to use in the manufacturing process.

Relying on earlier decisions, the Tribunal concluded that denial of credit on rejected inputs during manufacturing was unjustifiable. The Tribunal highlighted the importance of maintaining accurate records to establish rejected inputs as line rejections, emphasizing that the mere write-off of input values in accounts did not imply clearance of inputs. Consequently, the Tribunal set aside the impugned orders, allowing the appeals based on established legal principles and the appellants' accounting procedures.

In line with the previous Tribunal decisions and the established legal principles, the Tribunal granted relief to the appellants by setting aside the impugned orders and allowing the appeals against the Commissioner (Appeals) decision regarding the reversal of credit on inputs cleared without use in the manufacturing process and shown as "written off."