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2019 (11) TMI 119 - AT - Central ExciseReversal of CENVAT credit - Written off partial value of inputs - Circular No. 645/36/2005-CX dated 16.07.2002 - Sub-Rule 5(B) in Rule 3 of Cenvat Credit Rules - HELD THAT - The inputs on which value was written off was lying in the factory as the Revenue has not proved contrary that either the goods are not available or the same was disposed of or otherwise. Therefore, even though the inputs got obsolete but, since, the same is lying in factory, cenvat credit cannot be denied - the amended provision of sub-Rule 5(B) of Rule 3 of Cevat Credit Rules whereby it is provide that in case of partial written off value of the inputs the reversal of cenvat credit is required, however this provision came into effect from 01.03.2011 , therefore, prior to this date there was no statutory provision for reversal of credit in case partial value of the inputs is written off, therefore, during the period in question there was not statutory provision in reversal of cenvat credit in case of the value of the inputs is written off. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Reversal of Cenvat Credit on Written-off Inputs 2. Validity of Circulars Issued by C.B.E. & C. 3. Time Barred Demand Detailed Analysis: 1. Reversal of Cenvat Credit on Written-off Inputs: The primary issue was whether the appellant was required to reverse the Cenvat credit for inputs whose value was partially written off in the balance sheet. The department's demand was based on Board Circulars No. 101/12/1995-CX dated 22.02.1995 and Circular No 645/36/2005-CX dated 16.07.2002. The appellant argued that these circulars were ultra vires as there was no provision in the Cenvat Credit Rules for such reversal. The Gujarat High Court's judgment in Ingersoll Rand (India) Ltd. was cited, which held that the circulars could not mandate the reversal of credit in the absence of statutory provisions. The Tribunal noted that the inputs were still lying in the factory and were not disposed of, hence Cenvat credit could not be denied. The amended Sub-Rule 5(B) of Rule 3 of Cenvat Credit Rules, which mandates reversal for partially written-off inputs, came into effect only from 01.03.2011, and thus did not apply to the period in question (2004-2009). 2. Validity of Circulars Issued by C.B.E. & C.: The Tribunal examined the validity of the circulars issued by the C.B.E. & C. under Section 37B of the Central Excise Act, 1944. The Gujarat High Court in Ingersoll Rand (India) Ltd. held that the circulars could not impose a liability that did not exist under the rules. The circulars could clarify or relax the law but could not create new obligations. The Tribunal agreed with this interpretation, noting that the circulars could not enforce the reversal of Cenvat credit without statutory backing. The Tribunal also referenced other judgments, including those from the Bombay High Court and the Supreme Court, which supported the view that circulars could not alter the statutory provisions or impose additional burdens on the assessee. 3. Time Barred Demand: The appellant contended that the demand was time-barred as the SCN was issued on 25.03.2010 for the period 2004-2009. They argued that the balance sheet, a public document, disclosed the written-off value, and there was no suppression of facts. The Tribunal did not address the issue of limitation explicitly, as it resolved the case on merits by determining that there was no statutory provision for the reversal of Cenvat credit for the period in question. Conclusion: The Tribunal concluded that the demand for reversal of Cenvat credit based on the circulars was not sustainable in the absence of statutory provisions. The inputs, though written off in value, were still lying in the factory, and thus, credit could not be denied. The amended rule requiring reversal for partially written-off inputs was not applicable for the period under consideration. Consequently, the impugned order was set aside, and the appeal was allowed. The Tribunal also noted that if the inputs were later disposed of without being used in manufacturing, the Revenue could initiate fresh action in accordance with the law.
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