2018 (5) TMI 206 - AT - Central Excise

Reversal of CENVAT credit - inputs written off and written back in the books of account - Rule 3(5B) of the CCR 2004 - Held that - as and when assessee writes off the quantity of inputs on which the Cenvat Credit was taken, he is required to reverse an amount equivalent to cenvat credit taken in respect of the inputs which has been written off in the books of account. Therefore in principle on the quantity of inputs written off in the books of account, cenvat credit is required to be reversed. In the present case, there is a submission of the Ld. Counsel that they are not only writing off the inputs but as and when the written off quantity is found useable, the same is written back in the books of account. If at all there is any case of payment of cenvat credit it should be on the net quantity to written off after adjusting the written back quantity - the adjudicating authority must re-quantify the actual credit to be reversed on net written off quantity after adjusting the written back quantity. Appeal allowed by way of remand.

Summary

Issues:
Demand of Cenvat Credit on written off quantity of inputs under Rule 3(5B) of Cenvat Credit Rules, 2004.

Analysis:
The case involved a dispute regarding the demand of Cenvat Credit on the written off quantity of inputs by the appellant under Rule 3(5B) of the Cenvat Credit Rules, 2004. The appellant had made provisions for obsolescence of inputs on which CENVAT credit had been availed but did not reverse the proportionate credit in relation to inputs written off in the books of account. Show cause notices were issued for the recovery of the Cenvat amount on the operational quantity of the inputs written off. The adjudicating authority confirmed the demand based on the opening balance of obsolescence and monthly quantity of written off inputs. The Commissioner (Appeals) dropped the demand concerning the opening balance, citing lack of clarity on the period covered by the opening balance. However, the demand on the monthly written off quantity was upheld. Both the appellant and the Revenue filed appeals against the respective decisions.

The appellant's counsel argued that the demand should not apply to the extent that the appellant had written back some quantity during the same period. On the other hand, the Revenue contended that the opening balance shown in the obsolescence account consisted of written off quantities of inputs and should not have been dropped. The issue revolved around the interpretation of Rule 3(5B) of the Cenvat Credit Rules, 2004, which mandates the reversal of Cenvat credit on inputs written off in the books of account.

Upon careful consideration, the Tribunal found that the authorities had not considered the written back quantity of inputs while determining the Cenvat credit to be reversed. The proviso to Sub-Rule (5B) allows for the credit to be taken if the written off inputs are subsequently used. Therefore, the Tribunal concluded that a re-quantification of the Cenvat credit on the net written off quantity was necessary after adjusting the written back quantity. Additionally, regarding the Revenue's appeal, the Tribunal held that the demand on the opening balance should not have been dropped solely based on the period covered by the show cause notice. The Tribunal directed a reconsideration of both issues and remanded the case to the adjudicating authority for further examination. The judgment kept all issues open for future consideration.

In conclusion, the Tribunal's decision emphasized the importance of considering all relevant factors, including written back quantities, when determining the Cenvat credit to be reversed on written off inputs. The judgment highlighted the need for a thorough re-evaluation of the demands in question and underscored the significance of complying with the provisions of the Cenvat Credit Rules, 2004.