2020 (3) TMI 147 - AT - Central Excise

CENVAT credit - capital goods written off - contravention of provisions of Rule 3 (5B) of Cenvat Credit Rules 2004 - Department was of the view that when the appellants have made provision in their books of account for writing off the obsolete / non-moving capital goods they are required to reverse / pay up the cenvat credit pertaining to such capital goods - Extended period of limitation - HELD THAT - There are no reason as to how the department has called upon to pay up the cenvat credit availed and written off by the appellants, whether partially or fully for the period from 1994-2010 by issuing a show cause notice on 30.4.2015. The annexure to the SCN shows the demand is raised in respect of the credit availed from 1994 to 2010. This annexure shows the year of purchase of capital goods from 1994 to 2009 and the written off the value is done during this period. In the year 2010 and thereafter, there is no writing off the value of the capital goods but the amounts were carried forward to subsequent years. The act of writing off has happened prior to 2010. Thus the allegation that the appellants have written off the value after the period 2010 is factually incorrect as evidenced from annexure to the show cause notice. For this reason itself, the demand raised invoking the extended period cannot sustain. It is for the department to prove the allegations raised in the SCN. Even from the SCN or the documents placed before me, there is no evidence to show that the appellants have written off the full value of capital goods. There is only partial writing off to the extent of 50%, 70%, 90%. On such score, the amendment brought forth w.e.f. 1.3.2011 to reverse the credit on partial written off value would only apply. However, the provision for recovery of the credit availed wrongly has been introduced only w.e.f. 1.3.2013. This being the case, the demand raised for the credit availed from 1994-2010 and written off during this period cannot sustain. Demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants are liable to pay up the cenvat credit pertaining to the capital goods of which the values have been written off in their books account.

Analysis:
The case involved the appellants, engaged in manufacturing stainless steel products, who availed cenvat credit on inputs, capital goods, and input services. The issue arose when the department alleged a contravention of Rule 3 (5B) of Cenvat Credit Rules 2004, claiming that the appellants did not pay up the cenvat credit of ?60,91,748/- taken on capital goods that were later written off in their books of account. The department issued a show cause notice proposing to demand the credit availed on capital goods written off. The original authority confirmed the demand, interest, and penalties. On appeal, the Commissioner (Appeals) reduced the demand to ?43,23,059/-. The appellant challenged this before the Tribunal.

The appellant's counsel argued that the requirement to reverse the credit on fully written off inputs/capital goods was introduced only from 11.5.2007 onwards. The appellant had partially written off the value of obsolete capital goods, not fully as alleged by the department. The counsel highlighted that the provision for paying up cenvat credit on partially written off capital goods was introduced only from 1.3.2011. The machinery for recovery of wrongly availed credit was introduced from 1.3.2013. The appellant relied on precedents to support their argument that the demand for credit availed from 1994-2010 and partially written off during that period could not be sustained due to the absence of recovery provisions before 1.3.2013.

The department's representative contended that the appellants had fully written off the value of capital goods post-2010, supporting the findings of the impugned order. However, the Tribunal found that there was no evidence to prove full write-off, only partial write-offs of 50%, 70%, 90%. The Tribunal noted that the provision to reverse credit on partially written off value applied from 1.3.2011, while the provision for recovery of wrongly availed credit was introduced from 1.3.2013. Relying on precedents, the Tribunal held that the demand for credit availed from 1994-2010 and partially written off during that period could not be sustained due to the absence of recovery provisions before 1.3.2013.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief, if any. The demand, penalty, and interest were also set aside. The judgment emphasized the importance of proving allegations raised in show cause notices and the necessity of complying with legal provisions and timelines for recovery of wrongly availed credits.