2019 (5) TMI 971 - AT - Central Excise

CENVAT Credit - write off of inputs - denial on the ground that inputs on which such credit was claimed were charged to Launch expense ledger account and hence to be considered as written off - period 01.04.2008 to 31.12.2008 - Rule 3 (5B) of the CCR - failure to produce the information about the usage of inputs in the manufacture and maintaining proper records of receipt, disposal and inventory thereof - HELD THAT - The allegation of non-maintenance of record is not proved. The only allegation made out in the show-cause notice appears to be that such account has not been maintained in the SAP - there are no merit in this argument that the said records should have been maintained in the SAP. The respondent contended that they have mentioned the receipt of inputs and the credit availed thereof in the ER-1 Returns. Therefore, the provisions of Rule 9(5) of CENVAT Credit Rules, 2004 are by and large complied with. Therefore, there are no reason to interfere with the findings of Learned Commissioner as far as the maintenance of record is concerned. Another allegation in the show-cause notice was that the expenses on account of inputs used in the manufacture of pre-launch series of cars was debited to launch material account and the same amounted to writing off - HELD THAT - This is a mere accounting practice. Law cannot disregard the practices prevalent in the industry. If a particular industry treats such costs as expenses and denotes the same as expenses in the profit loss account it cannot be held that the same has been written off assuming them to be obsolete. What is to be seen is whether any provisions of Cenvat Credit Rules have been violated. It can be argued only on the basis of accounting standards that the impugned goods are written off. Therefore, the provisions of Rule 3(5B) of CENVAT Credit Rules, 2004 are not attracted. The necessary condition for availing credit is receipt of inputs under the cover of invoice, payment of duty of the same and utilization of the inputs in the manufacture. None of these events have been challenged in the show-cause notice. It is not the case of Revenue that the said inputs have not been received in the factory or not utilized in the manufacture or removed as such from the factory without payment of duty. The Respondents have correctly availed that credit and as rightly held by the Learned Commissioner, the Respondents need not reverse and credit in his regard - Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Demand for reversal of CENVAT credit under Rule 3(5B) of the CCR.
2. Allegations of improper record maintenance and lack of one-to-one correlation of inputs.
3. Interpretation of "write-off" under accounting standards and its applicability to CENVAT credit rules.
4. Usage of inputs in the manufacture of pre-series cars and their treatment as "Launch expenses."

Issue-wise Detailed Analysis:

1. Demand for Reversal of CENVAT Credit under Rule 3(5B) of the CCR:
The Revenue issued a Show Cause Notice demanding reversal of CENVAT credit of ?96,75,223 under Rule 3(5B) of the CCR for the period 01.04.2008 to 31.12.2008. The allegation was that the inputs were charged to the "Launch expense ledger account" and thus considered written off. The Commissioner dropped the demand, stating there was no evidence of clandestine clearance of inputs and that mere charging to the launch expense account does not invoke Rule 3(5B). The Tribunal upheld this decision, stating that the necessary conditions for availing credit—receipt of inputs, payment of duty, and utilization in manufacture—were met, and none of these events were challenged by the Revenue.

2. Allegations of Improper Record Maintenance and Lack of One-to-One Correlation of Inputs:
The Revenue argued that the Respondent failed to maintain proper records and could not provide one-to-one correlation of inputs. The Respondent contended that they had maintained records of receipt and usage of inputs in the manufacture of pre-series cars, which were cleared on payment of duty. The Tribunal found that the allegation of non-maintenance of records was not proved, as the Respondent had submitted invoice/bill of entry-wise details of inputs and the credit availed. The Tribunal also noted that CENVAT Credit rules do not require one-to-one correlation, and the Commissioner rightly held that it is sufficient if the inputs received were used in the manufactured product.

3. Interpretation of "Write-off" under Accounting Standards and its Applicability to CENVAT Credit Rules:
The Revenue argued that charging the value of raw material stock to the launch expense account amounted to a write-off, invoking Rule 3(5B). The Respondent countered that writing off is done when inputs are unfit for use or have deteriorated in value, which was not the case here. The Tribunal agreed with the Respondent, stating that the accounting practice of debiting to the launch expense account does not equate to writing off. The Tribunal found that the facts of the case did not fall into categories that would necessitate a write-off under AS-2 standards, and thus, Rule 3(5B) was not applicable.

4. Usage of Inputs in the Manufacture of Pre-series Cars and Their Treatment as "Launch Expenses":
The Respondent argued that the inputs were used in the manufacture of pre-series cars, necessary for obtaining regulatory approvals and certifications. The Tribunal noted that the inputs were received in the factory, used in the manufacture of pre-series cars, and disclosed in the ER-1 returns. The Tribunal found that the Commissioner correctly concluded that the inputs were used in the manufacture of pre-series cars, and there was no evidence of them being cleared as such or becoming obsolete. The Tribunal upheld the Commissioner's decision, stating that the Respondent need not reverse the credit, as the inputs were used in the manufacturing process and not written off.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the Commissioner's order, finding that the Respondent correctly availed CENVAT credit and did not need to reverse it. The Tribunal concluded that the necessary conditions for availing credit were met, and the accounting practice of debiting to the launch expense account did not equate to writing off the inputs.