2017 (11) TMI 1394 - AT - Central Excise

CENVAT credit - input/capital goods - denial on the ground that the capital goods and stock were written off - case of appellant is that they have made the provision to write off the input/capital goods only in the financial books and that the input/capital goods are very much lying in the inventory at the time of making provision and are being used as and when required by the production team - Held that - appellant has made provision to write off the value of inputs partially in their books of accounts as per the policy of the company which does not allow to make any provision to write off obsolescence stock on store and spares fully - also, the inputs for which the provisions of write off was provisionally made was subsequently used in the manufacture as per the provisions of Rule 3(5B). There was no recovery mechanism to recover the cenvat credit wrongly taken under the provisions of Rule 3(5B) and the recovery mechanism was brought into existence from 01.03.2013 vide N/N. 3/2013-CE (NT) dated 01.03.2013 - the demand of cenvat credit for the inputs for which the provision to write off has been made is not sustainable in law. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Alleged contravention of Rule 3(5B) of the Cenvat Credit Rules, 2004
- Demand of duty, interest, and penalties
- Applicability of recovery mechanism for cenvat credit
- Interpretation of provisions regarding write-off of inputs
- Justification for reversal of credit on written-off stock

Analysis:
The appeal was filed against the Commissioner (Appeals) decision upholding the Order-in-Original, which confirmed a demand for duty, interest, and penalties due to the alleged contravention of Rule 3(5B) of the Cenvat Credit Rules, 2004. The appellants, engaged in cement manufacturing, were accused of not reversing the cenvat credit availed on written-off stock, leading to the demand for recovery. The original authority had confirmed the demand and imposed penalties. The appellant argued that the impugned order was contrary to statutory provisions and judicial precedents, emphasizing that the inputs written off were still in inventory and used in production. They cited various decisions supporting their stance, including their own case and other tribunal rulings.

The appellant contended that the recovery mechanism for cenvat credit under Rule 3(5B) was introduced later and that the inputs were eventually used in manufacturing, entitling them to retain the credit. They challenged the penalties, interest, and extended limitation period, arguing against the invocation of the extended period when the inputs were known to the Department. The respondent reiterated the findings of the impugned order, emphasizing the appellant's failure to prove the subsequent use of written-off inputs in manufacturing, as required by Rule 3(5B).

After considering the submissions and precedents, the Tribunal found in favor of the appellant. It noted that the appellants had only partially written off the value of inputs in accordance with company policy, which did not allow full write-offs. The Tribunal also observed that the inputs provisionally written off were indeed used in manufacturing, as per Rule 3(5B). Additionally, it highlighted the lack of a recovery mechanism for wrongly taken cenvat credit under the rule before a specific date. Relying on cited decisions, including the appellant's own case, the Tribunal held that the demand for cenvat credit on written-off inputs was not sustainable, setting aside the impugned order and allowing the appeal with any consequential relief.

In conclusion, the Tribunal's detailed analysis focused on the interpretation of rules regarding the write-off of inputs, the applicability of recovery mechanisms for cenvat credit, and the justification for reversing credit on written-off stock. The decision provided clarity on the legal obligations and entitlements of the appellants in this case, emphasizing compliance with statutory provisions and relevant judicial precedents.