2021 (8) TMI 935 - AT - Central Excise

Reversal of CENVAT Credit - inputs written off - provision made in the books of accounts on account of Non-Moving Inventory, without reducing the value of inventory - Rule 3(5B) of Cenvat Credit Rules - HELD THAT - Rule 3(5B) of the CCR is attracted only when the value of the asset and or inventory is written off fully or partially, or wherein any specific provision to write off fully or partially has been made in the books of accounts - Admittedly, in the facts of the present case, the appellant has made only a general provision , which is not attributable to any particular capital asset/input. Admittedly, Revenue has not been able to identify the details of inventory or any asset, for which the general provision has been made. The show cause notice is erroneous as the amount of ₹ 57,52,999/- is for stores and spares provision appearing in the Trial balance as on 31.03.2017 ( a Credit Balance) whereas the amount of ₹ 20,04,324/-is debit balance of stores and spares expenses . The two being different account heads, have been wrongly taken together, making the show cause notice vague and misconceived. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
- Whether the demand of cenvat credit reversal is justified under Rule 3(5B) of Cenvat Credit Rules due to provision for non-moving inventory without reducing inventory value.

Detailed Analysis:

Issue 1: Justification of Cenvat Credit Reversal
- The appellant, engaged in manufacturing Lead and Zinc Concentrates, made provisions for non-moving inventory in their books for managerial decision-making without changing inventory value.
- The department issued a show cause notice demanding reversal of cenvat credit for the period from April 2016 to June 2017, alleging non-reversal of credit for capital goods/inputs write-offs.
- The appellant argued that provisions for non-moving inventory were not write-offs and did not reduce inventory value, as full value was maintained in the ledger.
- The Superintendent confirmed the demand, leading to an appeal by the appellant before the Commissioner (Appeals).
- The Commissioner upheld the demand, stating that any write-off or provision for partial write-offs required cenvat credit reversal.
- The appellant then appealed to the Tribunal, demonstrating accounting entries to show no change in inventory value and challenging the misinterpretation of provisions as write-offs.

Issue 2: Interpretation of Rule 3(5B) of CCR
- The Tribunal analyzed Rule 3(5B) of CCR, stating it applies only when assets/inventory values are fully or partially written off, or specific provisions for write-offs are made.
- Notably, the appellant's provision was a general one, not linked to specific assets/inputs, and the Revenue failed to identify affected inventory details.
- The Tribunal found errors in the show cause notice, as different ledger accounts were incorrectly combined, rendering it vague and misconceived.
- Rulings from the Hon'ble Supreme Court and Gujarat High Court were cited to differentiate between provisions and write-offs, supporting the appellant's position.

Conclusion:
- The Tribunal set aside the impugned order, ruling in favor of the appellant, emphasizing that Rule 3(5B) of CCR applies only to specific write-offs or provisions, not general ones.
- The appellant was granted consequential benefits, and the appeal was allowed, highlighting the misinterpretation of accounting entries and the lack of specific write-offs necessitating cenvat credit reversal.