2018 (5) TMI 970 - AT - Central Excise

Demand of interest and penalty - reversal of input credit on obsolete material - Held that - the appellant on their own at the time of audit itself reversed the cenvat credit of ₹ 5,61,616/- on obsolete raw materials for the year 2008, 2009, 2010 and 2011 - during the period in dispute there was no recovery mechanism to recover the cenvat credit wrongly taken under the provisions of Rule 3(5B) and the recovery mechanism was brought into existence from 01.03.2013 vide N/N. 3/2013 dated 01.03.2013 - the demand of cenvat credit for inputs for which the provisions to write off has been made is not sustainable in law and therefore, the appeal of the appellant allowed to the extent of dropping the demand of interest and penalty - appeal allowed - decided in favor of appellant.

Summary

Issues: Appeal against rejection of input credit reversal on obsolete raw materials, imposition of interest and penalty.

Analysis:
1. The appeal was against the rejection of input credit reversal on obsolete raw materials by the Commissioner (Appeals). The appellant, engaged in manufacturing garments labels, had reversed input credit on obsolete materials for certain years. The audit party observed provisions made towards inventory obsolete of raw material for multiple years. The appellant contested the reversal of input credit for the provisions made in 2007, stating that the material was subsequently utilized in manufacturing taxable goods. A show-cause notice was issued, leading to the confirmation of the demand of excise duty along with interest and penalty by the original authority.

2. The appellant argued that the impugned order was contrary to factual and legal positions, invoking the extended period of limitation unjustly. The appellant highlighted that they were subjected to regular audits, providing all necessary documents for verification. The appellant contended that the reversal of input credit for provisions made in 2007 was legal, citing a judicial precedent and emphasizing that the material was indeed utilized. The appellant also challenged the reversal of input credit on obsolete materials for specific years, asserting that interest and penalty were unjustified.

3. The Tribunal considered the submissions of both parties and the material on record. It noted that the appellant had voluntarily reversed input credit on obsolete raw materials for certain years and was contesting only the imposition of interest and penalty. Referring to judicial precedents, including the case of Heidelberg Cement India Ltd., the Tribunal found that there was no recovery mechanism during the disputed period to recover wrongly taken cenvat credit. Relying on the applicable ratios of the cited decisions, the Tribunal held that the demand of cenvat credit for inputs with provisions to write off was not sustainable in law. Consequently, the Tribunal set aside the impugned order, dropping the demand of interest and penalty.

This comprehensive analysis covers the issues raised in the legal judgment, detailing the arguments presented by both parties and the Tribunal's decision based on the facts and legal precedents cited.