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2018 (12) TMI 723 - AT - Central ExciseCENVAT Credit - whether the provisions of amended Rule 3(5B) of the CENVAT Credit Rules (CCR), 2004 are applicable, requiring the reversal in respect of the provisions made on account of non-cenvatable, non/slow moving goods? - period from 2007-08 to 2008-09. Held that - Hon ble High Court of Bombay in the case of Commissioner of Central Excise Vs. M/s. Hindalco Industries Ltd. 2011 (6) TMI 662 - BOMBAY HIGH COURT has considered a somewhat similar issue, where it was held that where the goods have been shown as written off goods, the benefit is available, case relates to a period prior to the amendment of Rule 3 by the insertion of sub-rules (5B) and (5C). The applicability of Rule 3(5B) is prospective. Consequently, there can be no demand of reversal of Credit on the opening balance (Rs.1,17,61,774/- as on 01.04.2007). The Show Cause Notice incorporates the reply filed by the assessee, taking note of the Additional provisions made for the period 2008-09 and 2009-10 up to August 2009 which are invariably hit by the provisions of Rule 3(5B) and therefore, the Credit availed, if any, is required to be reversed - matter remanded to the file of the adjudicating authority to verify and demand appropriate reversals. Appeal allowed in part and part matter on remand.
Issues:
Interpretation of amended Rule 3(5B) of the CENVAT Credit Rules, 2004 regarding reversal of credit for slow-moving or non-moving goods. Analysis: The appeal concerns the applicability of amended Rule 3(5B) of the CENVAT Credit Rules, 2004, specifically focusing on the reversal of credit for slow-moving or non-moving goods. The appellant, engaged in manufacturing pumps and parts, avails CENVAT Credit on inputs but also makes provisions in its books for slow-moving or non-moving materials. The Revenue demanded reversal of credit citing the amended provisions of Rule 3(5B) based on a provision in the balance sheet for such goods. A Show Cause Notice was issued, leading to confirmation of proposals in the Order-in-Original, which the appellant challenged in this appeal. During the hearing, the appellant argued that the provisions made were not related to slow-moving goods, highlighting that provisions like loss on customer orders were supported by documentary evidence. The appellant contended that Rule 3(5B) applies only when credit is availed on inputs that become obsolete before use, which was not the case as items were procured from vendors not involving CENVAT duty. In contrast, the Revenue supported the lower authorities' findings, emphasizing that any provision in the books to write-off requires payment equivalent to the CENVAT Credit availed. The judgment referred to precedents like the Bombay High Court and various Tribunal decisions to establish that Rule 3(5B) is prospective, not applicable to the opening balance as on 01.04.2007. It highlighted cases where the Tribunal ruled in favor of parties when inputs were not removed from inventory despite provisions made in books. The conclusion drawn was that Rule 3(5B) does not demand reversal of credit on the opening balance, but the matter of additional provisions made for later periods was remanded for verification and appropriate action. In summary, the judgment clarifies the prospective nature of Rule 3(5B) and the conditions under which the reversal of credit for slow-moving or non-moving goods is required. It provides guidance based on legal interpretations from previous cases and remands the matter for further assessment in specific periods, partially allowing the appeal.
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