2018 (4) TMI 656 - AT - Central Excise

CENVAT credit - capital goods and inputs, which were subsequently written off as obsolete - the obsolete capital goods and the inputs were written off in the year 2005 - Held that - identical issue decided in the case of PCOMMR. OF CENTRAL EXCISE Versus INDIAN PETROCHEMICALS CORPN. LTD. 2007 (8) TMI 359 - HIGH COURT OF JUDICATURE AT BOMBAY , where it was held that The Tribunal in a long line of judgments where goods have been shown as written off in the books, have taken a view that the benefit is available - credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Reversal of CENVAT credit on obsolete capital goods and inputs.

Analysis:
The appeal challenged the Order-in-Appeal passed by the Commissioner of Central Excise regarding the reversal of CENVAT credit availed on capital goods and inputs written off as obsolete. The appellant's unit was closed for approximately four years due to water and electricity supply discontinuation by the Municipal Corporation, leading to the goods becoming obsolete. The audit party directed the appellant to reverse the CENVAT credit, which was confirmed in the order-in-original and the subsequent appeal was rejected.

The first appellate authority upheld the reversal based on a Board's Circular, contrary to the law decided by the Division Bench of the Tribunal in a previous case. The Tribunal referred to Rule 3(5) of CENVAT Credit Rules, 2004, which states that if inputs or capital goods are written off fully in the books of account before being put to use, the manufacturer shall pay an amount equivalent to the CENVAT credit taken. However, this rule was inserted after the period in question, making it inapplicable as per previous judgments.

The Tribunal cited precedents where it was held that duty or reversal of CENVAT credit cannot be demanded for obsolete goods lying in the factory but duty is payable only upon their removal. The Tribunal also mentioned judgments from the Hon'ble High Court of Bombay supporting this view. Consequently, the impugned order was deemed unsustainable and set aside, allowing the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, highlighting the inapplicability of the CENVAT credit reversal rule to the case in question based on the timing of the rule's insertion. The judgment emphasized the importance of physical removal of obsolete goods for duty payment, as established by previous legal precedents and supported by the High Court's decisions.