2019 (3) TMI 776 - AT - Central Excise

CENVAT Credit - partial/ full writing off of inputs - Rule 3(5B) of Cenvat Credit Rules, 2004 - extended period of limitation - validity of SCN - Interpretation of statute - Held that - The issue is one of interpretation. For reversal of cenvat credit on partial writing down of value of inputs , the provision was introduced only first time by amendment of Rule 3(5B) of Cenvat Credit Rules, with effect from 01.03.2011 - Further, there was no provision prior to 01 March 2013 for recovery of cenvat credit and interest thereon under Rule 3(5B) etc. which was made applicable with effect from 01.3.2013 only, by virtue of Notification No. 3 of 2013-CE(NT) dated 01.03.2013. The notification provides that if the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (5), (5A) and (5B), it shall be recovered, in the manner as provided in Rule 14, for recovery of CENVAT credit wrongly taken. The issue has arisen due to change of opinion on the part of the Revenue, but there is no suppression of facts on the part of the appellants - Further, no amount was due to be reversed under rule 3(5B) on the date of issue of show cause notice. Thus, larger period for limitation can not be invoked and no show cause notice was required to be issued - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants were rightly issued a show cause notice for not appropriately reversing the cenvat credit on partially/fully written off inputs.

Analysis:
The issue in this appeal revolved around the question of whether the appellants, who were manufacturers of telecommunication equipment, were correctly issued a show cause notice dated 19.9.2014 for the period July 2009 to March 2013, invoking the extended period of limitation. The notice alleged that the appellants did not reverse the cenvat credit on the partially or fully written off inputs as required under Rule 3(5B) of the Cenvat Credit Rules, 2004. It was acknowledged that the appellants were reversing the cenvat credit on fully written off inputs but not on partially written down inputs, based on their interpretation of Rule 3(5B) which, according to them, required reversal only in case of full writing down of value.

The show cause notice contended that during an audit, it was observed that the appellants had made provisions for 'obsolete inputs' in their books of account in the financial year 2011-2012. While the appellants did reverse the cenvat credit on partially written down inputs, the Revenue proposed further appropriation of a matching amount. The notice also alleged that the extended period was invokable due to the appellants' failure to disclose the provisions for inventory write-off, leading to a deliberate suppression of facts to evade payment of duty.

Upon considering the arguments, the Tribunal found that the issue primarily involved interpretation. It was highlighted that the provision for reversing cenvat credit on partially written down inputs was introduced through an amendment to Rule 3(5B) effective from 01.03.2011. Prior to this, there was no legal requirement for such reversal. The Tribunal also noted that the recovery of cenvat credit and interest under Rule 3(5B) was made applicable from 01.03.2013 onwards. Consequently, it was held that there was no suppression of facts by the appellants, and no amount was due to be reversed under Rule 3(5B) at the time of the show cause notice. Therefore, the Tribunal concluded that the larger period for limitation could not be invoked, and the impugned order was set aside, allowing the appeal with consequential relief.