2021 (10) TMI 482 - AT - Central Excise

CENVAT Credit - provision made in the books of accounts on account of Non-Moving Inventory, without reducing (writing down) the value of inventory - Rule 3(5B) of Cenvat Credit Rules, 2004 - HELD THAT - Rule 3(5B) of the CCR is attracted only when the value of the asset and/or inventory is write-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. Thus, the show cause notice is erroneous as the demand has been made even on the reversal of the provision. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
- Justification of demand of cenvat credit under Rule 3(5B) of Cenvat Credit Rules, 2004 for provision made in books of accounts on account of Non-Moving Inventory without reducing the value of inventory.

Analysis:
1. The appellant, engaged in manufacturing Lead and Zinc Concentrates, avails Cenvat Credit on inputs, capital goods, and input services under the Credit Rules.
2. The appellant made provisions for non/slow-moving inventory in the books of accounts to manage inventory stock efficiently, following accounting principles, without altering the inventory value.
3. The department issued a show cause notice demanding reversal of Cenvat credit, alleging failure to reverse credit for capital goods provisioned as 'write-off' under Rule 3(5B) for the relevant period.
4. The appellant argued that provisions made were not for 'write-off,' as the inventory was not obsolete, and the inventory value was maintained in the ledger at full value.
5. The Assistant Commissioner upheld the demand, imposing interest and penalty under Rule 15(1) of CCR, leading the appellant to appeal to the Commissioner (Appeals).
6. The Commissioner (Appeals) remanded the matter, resulting in the Assistant Commissioner reaffirming the original decision, which was upheld by the Commissioner (Appeals).
7. The appellant, dissatisfied, approached the Tribunal, reiterating that the demand was erroneous and demonstrated accounting practices followed to create provisions.
8. The appellant cited precedents to distinguish between provisions and write-offs, emphasizing that no change occurred in the inventory value in the books of accounts.
9. The Tribunal noted that Rule 3(5B) applies when assets or inventory are fully or partially written off, which was not the case here, as only a general provision was made without specific identification.
10. The Tribunal found the show cause notice erroneous, as it demanded reversal even on provision reversal, and ruled in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential benefits.