2018 (7) TMI 981 - AT - Central Excise

Reversal of CENVAT Credit - inputs cleared as such and shown in their accounts as written off - Held that - An identical issue decided in the case of FORCE MOTORS LTD. VERSUS CC, CCE & ST, INDORE 2017 (5) TMI 813 - CESTAT NEW DELHI , where taking a view that 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, it was held that The full value of the inputs having been written off in the accounts because of this reason by itself cannot be inferred to mean that these inputs are cleared as such - credit cannot be denied - appeal allowed - decided in favor of appellant.

Summary

Issues: Liability to reverse credit on inputs cleared without use in manufacturing process and shown as "written off".

The judgment involved an appeal against an Order-in-Appeal passed by the Commissioner (Appeals) Central Excise, Indore, concerning the liability of the appellant to reverse credit on inputs cleared without use in the manufacturing process and shown as "written off" in their accounts. The appellants, engaged in the manufacture of motor vehicles and parts, were availing credit of duty paid on various inputs under the Cenvat Credit Rules, 2004. The Revenue claimed that the appellants had cleared inputs without using them in the manufacturing process and had written off the value of these inputs in their accounts. The dispute revolved around the reversal of credit on such inputs, leading to the initiation of proceedings against the appellants for recovery of the credit availed. The Original Authorities confirmed the amounts to be recovered and imposed penalties, which were upheld by the Commissioner (Appeals) in the impugned order, prompting the appellants to file the present appeal.

The primary contention raised by the appellants was that inputs not meeting standards were returned, and inputs used for intended manufacturing purposes were eligible for credit, even if they were later found damaged or unfit during the manufacturing process. They argued that the "write off" of inputs due to damage or being unfit should not result in the reversal of credit, citing various decided cases to support their position. The appellants detailed their accounting procedures, emphasizing that damaged or rejected inputs were accounted for and written off as per standard procedures, with the scrap value added to their accounts when realized. They also highlighted the computerized accounting system maintained by the appellants to track hundreds of components used in the manufacturing process.

The Revenue, on the other hand, contended that the complete write-off of input values indicated that the inputs were not used in the manufacturing process, citing a Board's Circular to support their argument that credit should not be entitled on inputs written off in the assessee's books. They challenged the appellants to establish that the inputs were genuinely damaged or rejected during the manufacturing process. The Tribunal, after hearing both sides and examining the appeal records, referred to a previous decision involving the same appellant for a different period, where it was held that if inputs were used for the intended purpose of manufacture, the credit could be rightfully availed. The Tribunal emphasized that the key issue was whether the inputs were used for their intended purpose, and if so, any subsequent damage or rejection during the manufacturing process should not impact the credit availed on them.

The Tribunal further referenced several earlier cases where it was held that credit on inputs rejected during the manufacturing process could not be denied, as long as the inputs were initially put into the manufacturing process. The Tribunal noted that denial of credit based solely on inputs being written off in the accounts without evidence of clearance was not justifiable. Ultimately, the Tribunal found no justification for the denial of credit as confirmed by the impugned order and set aside the decision, allowing the appeal in favor of the appellants. The judgment highlighted the importance of establishing whether inputs were genuinely used for their intended purpose in determining the eligibility of credit, following established legal principles and precedents to grant relief to the appellant.