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2024 (10) TMI 1336 - AT - Central ExciseReversal of CENVAT Credit with interest and penalty - non-moving/ obsolete /surplus inventories - inputs written off in their books of account in accordance of rule 3 (5B) of CCR - Invocation of extended period of limitation - HELD THAT - On a plain reading of the said Rule it is clear that in the event the value of any input or capital goods before being put to use on which Cenvat credit has been availed are written off fully or partially or any provision has been made to write off those fully or partially than the manufacturer or service provider are required to reverse/pay Cenvat credit availed on such inputs or capital goods. Thus it is clear that provisions of rule 3 (5B) CCR are applicable only when the value of 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. In the present case from the very beginning the appellant have submitted that they have only written down the value of the raw materials in their books of account and has not written off the value fully or partially. Also, the claim of the appellant are that all these raw materials are still available in their factory and are in usable conditions; the value is written down as per the accounting principle and since the credit availed is on inputs, therefore, under the CCR, 2004, there is no bar in taking depreciation benefit' under Income-tax Act, 1961 - there is no evidence to the effect that the inputs whose value had been written down had been removed from the factory, thus, reducing the value of the raw materials. Keeping in view the accounting principles and Income-tax benefit, if any, it cannot be construed that the value of the inputs are written off from the books of account and are not usable resulting into invoking of Rule 3(5B) of Cenvat Credit Rules, 2004. There is no denial by the Department about appellant to have kept the inventory in their accounts at full value and upon consumption in regular course of business, the cost of inventory is booked at full value itself. There is also no denial to the fact that the non/slow moving inventory has at certain stage being used by the appellant in its manufacturing process. Hence the inventory which had not become obsolete cannot be called as the entry written off. As already observed above Rule 3(5B) CCR is invokable vis- -vis written off entry only. The said rule has wrongly been invoked by the Department. This Tribunal also in the case of M/S. HINDUSTAN ZINC LTD. VERSUS COMMISSIONER OF CENTRAL GOODS SERVICE TAX COMMISSIONERATE, UDAIPUR (RAJASTHAN). 2021 (8) TMI 935 - CESTAT NEW DELHI and in another case titled as M/S TAKATA INDIA PVT. LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, ALWAR, RAJASTHAN 2022 (4) TMI 1359 - CESTAT NEW DELHI has been held that since the assessee has made only a general provision and the department has not been able to identify the details of inventory or assets for which the provision has been made as to whether those inventories have become obsolete, the demand confirmed invoking Rule 3(5B) in the circumstances is not sustainable. There is also no denial to the fact that in case where such non/slow moving inventory had become obsolete the appellant had already reversed the credit. Invocation of extended period of limitation - HELD THAT - It is observed that the provision in the records of the appellant (balance-sheet/ P L accounts) was the activity in accordance of normal accounting practice. Appellant is found to have committed nothing which may amount to evasion of tax. His defence since the stage of replying to the show cause notice has been apparently clearer about non-invokability of rule 3 (5B) of CCR, but the same has not been considered by the authority below - there is no evidence for the invocation of extended period. Show Cause Notice (SCN) therefore is held to be barred by the period of limitation. The impugned order is set aside - appeal allowed.
Issues:
1. Applicability of Rule 3(5B) of Cenvat Credit Rules, 2004 on the appellant. 2. Interpretation of the provision made for slow/non-moving inventory in the appellant's books of account. 3. Invocation of the extended period of limitation for the Show Cause Notice (SCN). Analysis: 1. Applicability of Rule 3(5B) of Cenvat Credit Rules, 2004: The case involved a dispute regarding the reversal of Cenvat Credit by the appellant for non-moving/obsolete/surplus inventories. The appellant contended that the rule does not apply as they had not written off the inventory value. The department argued that the Cenvat Credit should have been reversed as per Rule 3(5B) of CCR 2004. The Tribunal analyzed the rule and concluded that it applies only when the value of assets or inventory is written off fully or partially. Since the appellant had not written off the value but only made provisions for slow-moving inventory, the rule was held to be wrongly invoked. 2. Interpretation of the provision for slow/non-moving inventory: The appellant maintained an "Accounting Manual" where provisions were made for slow/non-moving inventory. The Tribunal noted that these provisions did not change the value of inventory and were reviewed annually. It was observed that the provisions were made without writing off any amount from the asset/inventory account. The Tribunal cited precedents to differentiate between provisions for doubtful debts and actual write-offs. It held that the provisions made by the appellant did not amount to writing off the inventory, as the goods were still in use and gradually consumed in the manufacturing process. 3. Invocation of the extended period of limitation: The department invoked the extended period of limitation for the SCN based on the appellant's balance sheet entries. However, the Tribunal found that the appellant's actions were in accordance with normal accounting practices and did not amount to tax evasion. The Tribunal held that there was no evidence of punitive tax evasion by the appellant, and thus, the SCN was considered barred by the period of limitation. Consequently, the order under challenge was set aside, and the appeal was allowed. In conclusion, the Tribunal ruled in favor of the appellant, holding that the provisions of Rule 3(5B) were wrongly applied, the provisions made for slow/non-moving inventory did not constitute write-offs, and the extended period of limitation for the SCN was not justified. The appeal was allowed, and the order under challenge was set aside.
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