2016 (10) TMI 138 - AT - Central Excise

Reversal of Cenvat credit and payment of interest - availed CENVAT Credit on inputs for the year ended 31.03.2008 - provision is made only for partial write off of inputs - Held that - the appellant is not liable to reverse CENVAT credit when the value of inputs has been written off partially and the provision of Rule 3(5B) of CENVAT Credit Rules 2004 is applicable where the provision of write off fully is made. It is also pertinent to note that for the subsequent period, the Additional Commissioner vide his order dated 01.12.2011 has given the benefit to the appellant. Therefore keeping in view the aforesaid situation, the impugned order is not sustainable in law and is set aside. Further when the credit itself is not liable to be reversed, the question of payment of interest does not arise at all. - Decided in favour of appellant

Summary

Issues involved:
- Liability to reverse CENVAT credit on inputs partially written off
- Applicability of Rule 3(5B) of CENVAT Credit Rules 2004
- Interpretation of relevant legal provisions
- Payment of interest on CENVAT credit reversal

Analysis:

Issue 1: Liability to reverse CENVAT credit on inputs partially written off
The appellant, engaged in manufacturing circuit breakers and other products, availed CENVAT Credit on inputs for the year ended 31.03.2008. The dispute arose when the appellant created a provision for obsolete and slow-moving stock, leading to a partial write-off of inputs. The Joint Commissioner of Central Excise held that the reversal of CENVAT credit should have occurred at the time of write-off, not when the inputs were removed. The appellant argued that as per Rule 3(5B) of the CENVAT Credit Rules 2004, liability arises only if inputs are fully written off or provision for full write-off is made, not for partial write-offs.

Issue 2: Applicability of Rule 3(5B) of CENVAT Credit Rules 2004
Rule 3(5B) states that if the value of inputs on which CENVAT credit is taken is fully written off or provision for full write-off is made, the manufacturer shall pay an amount equivalent to the CENVAT credit taken. The appellant contended that since they made a provision for partial write-off and not full write-off, they were not obligated to reverse the CENVAT credit. They also highlighted Notification No. 3/2011, effective from 01.03.2011, extending the rule to goods written off partially, which was not applicable to the period in question.

Issue 3: Interpretation of relevant legal provisions
The appellant cited a previous order by the Additional Commissioner of Central Excise for the period 2008-09, where it was held that the appellant was not required to reverse CENVAT credit for partial write-offs. Referring to a Tribunal judgment in Sanghavi Engineering case, the appellant argued that prior to 01.03.2011, reversal of credit was only necessary for full write-offs, not partial ones. The Tribunal's observation emphasized that the Department had not claimed retrospective effect for the amendment dated 01.03.2011.

Issue 4: Payment of interest on CENVAT credit reversal
The Tribunal, after considering both sides' submissions and relevant legal provisions, concluded that the appellant was not liable to reverse CENVAT credit for partial write-offs. As the value of inputs had been partially written off, the provision of Rule 3(5B) applied only to full write-offs. The Tribunal also noted that the Additional Commissioner had previously ruled in favor of the appellant for a similar period. Consequently, the impugned order was set aside, and the question of payment of interest did not arise since the credit itself was not required to be reversed.

This detailed analysis of the judgment highlights the interpretation of Rule 3(5B) of the CENVAT Credit Rules 2004, the application of legal provisions to partial write-offs, and the Tribunal's decision in favor of the appellant based on the specific circumstances and precedents cited.