2019 (3) TMI 857 - AT - Central Excise

CENVAT Credit - write off of inputs partially or fully - Whether upon an assessee writing off certain inputs either partially or fully in its books of account for the income-tax purpose, he is also required to reverse Cenvat credit taken on such inputs? - Held that - The Cenvat credit was available as provided under Rule 57A. Sub-rule (1) thereof provides that the provisions of this Chapter which is Chapter V(AA) pertaining to credit of duty paid on excisable goods used as inputs shall apply to such finished excisable goods as may be notified by the Central Government for the purpose of allowing credit on any duty of excise or additional duty as may be specified in such notification paid on the goods used in the manufacture of the said final products. Rule 57F provided for the manner of utilisation of inputs and the credit allowed in respect of duty paid thereon. It can be seen that the liability of the assessee to pay duty equal to the amount of credit availed in respect of a particular input would arise at the time of the removal of the inputs for home consumption. This rule did not envisage reversal of Cenvat credit even before removal of goods. There was no provision under which the cenvat credit already taken under the Rules of 1944 could be directed to be reversed simply because the input goods were not utilised for a certain period of time. We also note that there is significant difference in the accounting approach for the income-tax purpose and the approach for stock maintenance for the purpose of manufacturing activities relevant for the question of excise. Therefore, merely because the value of goods diminished in the books of account of the assessee would not by itself permit the Department to insist on reversal of the credit particularly when such goods were still available in the factory in usable condition. The reversal of the credit would amount to collection of duty which would be wholly unauthorised. The Board s circular could not have created a liability which did not exist under the rules - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Irregular availing of Cenvat credit on obsolete inventory.
- Requirement to reverse Cenvat credit on inputs completely written-off in the books.

Analysis:
1. The case involved the appellants engaged in manufacturing polyester pet chips, polyamide chips, and polyester film, availing Cenvat credit under Cenvat Credit Rules, 2004. The audit revealed irregular availing of Cenvat credit amounting to a specific sum on obsolete inventory written-off for the financial years 2010 to 2014. Subsequently, a show cause notice was issued proposing reversal of the irregularly availed credit along with interest and penalties, which was confirmed in the Order-in-Original and subsequent appeal rejection, leading to the appeal before the Tribunal.

2. The appellant contended that the audit officers did not verify relevant records relating to inputs and capital goods to confirm any write-off. They argued that no write-off occurred due to obsolescence, as the goods were removed from the factory and could still be used when necessary. The appellant emphasized the nature of their business, where some items may become obsolete over time due to technological changes, but could still be utilized when needed. They sought to set aside the order and allow the appeal.

3. On the contrary, the Department justified the order, citing relevant statutory provisions, judgments, and Circulars, asserting that the appellant was required to reverse the Cenvat credit on inputs shown as written-off in their books of accounts. They argued that the order was legally sound and urged the dismissal of the appeal.

4. The main issue for adjudication was whether the Cenvat credit on inputs completely written-off in the books needed to be reversed. The Tribunal considered the arguments presented by both parties and examined the records to address this crucial question.

5. The Tribunal deliberated on whether, upon an assessee writing off certain inputs in their books for income-tax purposes, they were also obligated to reverse the Cenvat credit taken on such inputs. The contention was that such write-offs were solely for accounting purposes and did not impact the manufacturing activities of the assessee.

6. Referring to relevant rules and a Supreme Court decision, the Tribunal highlighted that the Rules did not prescribe a specific period within which inputs must be consumed. It was observed that the liability to pay duty equal to the credit availed arose only upon the removal of inputs for home consumption, with no provision for reversal of Cenvat credit before such removal.

7. The Tribunal analyzed Circulars issued by the Central Board of Excise and Customs, noting that they did not provide clarity on whether the reversal of credit was required upon writing off inputs for accounting or income-tax purposes. It was emphasized that the accounting approach for tax purposes differed from that relevant to manufacturing activities for excise purposes.

8. Ultimately, the Tribunal concluded that in the absence of any specific authority under the rules, the Circulars could not mandate the reversal of Cenvat credit. Reversing the credit would amount to unauthorized duty collection, as the rules did not provide for such a requirement. Therefore, the order under challenge was set aside, and the appeal was allowed.