2023 (11) TMI 889 - AT - Central Excise

CENVAT re-Credit on inputs, provisionally written off in the books of accounts - Rule 3(5B) of CENVAT Credit Rules, 2004 - invocation of extended period of limitation - interest - penalty. It appeared to the department that the CENVAT credit on Obsolescent material which was earlier debited, was taken back on 30.06.2017, without utilising the same in the manufacture of final products. HELD THAT - The Appellant have availed CENVAT re-credit of Rs.34,84,905/- on 30.06.2017 on the inputs which were provisionally written off earlier and carried forward the same in ER 1 return filed prior to introduction of GST in terms of Section 140(1) of the Act as transitional credit. It is pertinent to note that the material on which CENVAT credit was availed was not fully written off. In terms of provisions of Rule 3(5B) of erstwhile CENVAT Credit Rules, 2004, any assessee is entitled to take re-credit if the said inputs/ capital goods are subsequently put to use in the manufacture of final products and which have not been fully written off - In the instant case, the Appellant has provided documents pertaining to the utilisation of inputs in the manufacture of final products. The provisions of Rule 3(5B) of erstwhile CENVAT Credit Rules, 2004 are very clear which states that when said inputs or capital goods are subsequently used in the manufacture of their products, the manufacturer is entitled to take the credit of the amount equivalent to the CENVAT Credit paid earlier. Extended period of Limitation - HELD THAT - In the instant case, the appellant has provided sufficient documentary evidence pertaining to the utilisation of inputs in the manufacture of their final products. As such, the demand of alleged ineligible CENVAT Credit cannot sustain. As the issue is of interpretational in nature, invocation of extended period is not justified as the ingredients required for extending the limitation are not satisfied in this case. Interest and penalty - HELD THAT - As the demand cannot sustain, imposition of penalty and demand of interest also cannot survive. However, it is to be observed that the Departmental authorities are free to verify the utilisation of the impugned inputs whether used or not in the manufacture of their finished products by the appellant. The impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Eligibility of CENVAT re-credit on provisionally written-off inputs.
2. Applicability of extended time limit for demand and interest.
3. Justification for imposition of penalty.

Summary:

Issue 1: Eligibility of CENVAT re-credit on provisionally written-off inputs
The primary issue was whether the appellant was eligible to avail CENVAT re-credit on inputs that were provisionally written off in the books of accounts under Rule 3(5B) of CENVAT Credit Rules, 2004. The Tribunal found that the appellant had availed CENVAT re-credit of Rs.34,84,905/- on 30.06.2017 on inputs provisionally written off earlier and carried forward the same as transitional credit in ER 1 return filed before the introduction of GST. The Tribunal noted that the materials on which CENVAT credit was availed were not fully written off and that the appellant provided documents showing the subsequent usage of these inputs in the manufacture of final products. The Tribunal held that retaking of CENVAT credit was in order, as the appellant had an intention to utilize the inputs, which would have otherwise lapsed with the introduction of GST.

Issue 2: Applicability of extended time limit for demand and interest
The Tribunal found that the extended time limit for demand under Section 11A(4) of the Central Excise Act, 1944, was not justified. The Tribunal noted that the issue was interpretational in nature, and the ingredients required for extending the limitation were not satisfied in this case. Therefore, the invocation of extended period was not justified, and the demand of alleged ineligible CENVAT credit could not sustain.

Issue 3: Justification for imposition of penalty
Given that the demand could not sustain, the imposition of penalty and demand for interest also could not survive. The Tribunal observed that the Departmental authorities are free to verify the utilization of the impugned inputs during subsequent audits to ensure compliance.

Conclusion:
The Tribunal set aside the impugned Order-in-Appeal No. 55/2022 (CTA-1) dated 25.11.2022, granting consequential relief to the appellant as per law. The Tribunal emphasized that the appellant is eligible to retake the credit initially provisionally written off, provided the inputs are subsequently used in the manufacture of final products.