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TMI Blog2019 (5) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... ory thereof and to give one-to-one co-relation of inputs in the manufacture of cars. 2. Learned Commissioner dropped the demand holding, on the basis of records before him, that he was satisfied that the inputs were received and used in the production of pre-series cars cleared on payment of excise duty and were accounted so in the ER-1 returns; that there was neither allegation nor any evidence that the assessee cleared the inputs clandestinely; mere charging expenses to Launch expense account does not entitle the department to invoke Rule 3(5B) of the CCR. Hence, the Revenue has preferred the present Appeal. 3. Shri N.N. Prabhudesai, Learned Authorised Representative, for the Revenue submits a written brief and argues that Shri Kaushik Basu-AGM (Finance & Accounts) in the statement dated 6/8/2009, stated that all inputs purchased up to 31/12/2008 were debited to "launch material Account" which was included under the head "Launch expenses" and submitted a statement giving details of launch material of Rs. 5,55,38,521/- and details of Cenvat credit taken amounting to Rs. 93,73,210; Rs. 6.35 Cr disclosed in Schedule 4 of the balance sheet pertained to imported material components ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no such stock record was maintained to correlate the same and that no physical stock taking was conducted in respect of the stock of inputs as on 31/12/2008 and hence no such report was available. Shri Bhaskar submitted a letter dated. 10/5/2010 giving details of credit taken along with copies of Eenvat documents on which they claimed credit. That credit involved in the so called "launch material" as on 31/12/2008 as reflecting in 'launch expense account' was Rs. 96,75,221/- and stock accounting records were being maintained from Feb 2009. 3.2. As per Koehler's dictionary for accountants write off means- 'to transfer the balance of an account previously regarded as an asset to an expense account or to profit and loss'. Therefore, charging the value of raw material stock (which is an item of asset) to the launch expense account is nothing but write-off of the stock of raw material and provisions of Rule 3 (5)(b) of Cenvat Credit Rules, 2004 is applicable. Thus, the Cenvat Credit taken on raw material/inputs of Rs. 96,75,223/- was required to be paid the Respondents. The Respondents used the guidelines under Accounting Standard on stock valuation to suit their conveni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "there would be no sale proceeds for the try out/pre-series cars, the value of inventory when valued at the lower of cost and Net realizable value would be zero". Even if for the sake argument, the Respondent/Assessee's contention of treatment given as per AS-2 principles is to be considered, then as per the representative of the assessee, the cost of inventories would have to fall in one of the four criterias mentioned hereinabove. The situations arising at point no c and d would not be applicable as it is the initial period of production and accordingly it would have been a case falling under the category of point no.(a) and (b) above in the said circumstances also, the assessee/respondents were required to reverse the credit as per the provisions of CCR, 2004. 3.5. As per provisions of Rule 9(5) the assessee was bound/ required to maintain proper records for receipt, disposal, consumption and inventory of the inputs on which they avail Cenvat Credit. Shri Bhaskar, GM (Finance) in his statement dated 29/4/2010 has admitted the fact that "they had not maintained stock register/ record in respect of the inputs procured by them and lying in stock as on 31/12/2008", and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e costing treatment of such inventory, was nothing but writing off the value of the impugned inputs in question, as discussed in para A. 1 and A. 1 above. Moreover, they had also failed to prove that such impugned goods though after having been written off, were actually used in the manufacture of the pre-series cars, as per proviso to Rule 3(5B) of C.C. Rules, 2004 to allow them the benefit of Cenvat credit of the impugned inputs. As such the assessee was not eligible to avail Cenvat credit attributable to impugned inputs in question as per the provisions of Rule 3(5B) of the CC Rules, 2004 as per the allegations contained in para 8.8 of SCN. 4. Shri Prasad Paranjape, Learned Counsel for the appellants, submits that as per the industry practice and regulatory requirement, before any cac model is launched for commercial use, it is necessary that adequate tests are carried out and necessary permissions or certifications obtained. The cars manufactured and used for this purpose are called pre-series cars; the disputed CENVAT credit on inputs was used by the Respondent in relation to manufacture of 39 nos. pre-series cars of 'Skoda Fabia' model which were cleared on payment duty; th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten off fully or where provisions to write of fully, has been made in the books of accounts. In terms of the said rule in such an event the manufacturer is required to reverse the CENVAT credit. The proviso to the said Rule further provides as and when and such written off input are subsequently used in the manufacture of final products then the credit on the same is allowed. Once the excise duty is paid on the pre-series cars manufactured, Revenue cannot deny Cenvat credit on inputs used in such manufacture. Even otherwise, activity of using inputs in the manufacture of pre-series cars is inextricably linked with main manufacturing process as without necessary tests and certification, the Respondent would not be able to manufacture and sell cars in India. Therefore, reliance placed by the Revenue on Rule 3 (5B) is inappropriate and unsustainable in law. 4.3. The learned Counsel for Respondents further submits that as per the provisions of Rule 9(5) of CCR, 2004, the assess was required to maintain proper records for receipt, disposal, consumption and inventory of inputs on which they avail CENVAT Credit and which has been admitted by Shri Bhaskar G.M. (Finance) in his statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute, Respondents are entitled for the credit. 5. Heard both sides and perused the records of the case. Revenue's contention in the impugned show-cause notice is that the respondents have availed credit on input used in the manufacture of pre-launch series of cars. The cost of the inputs was debited to 'launch expense ledger account' and that they have not maintained proper account of the inputs. We find that Learned Commissioner had dropped the proceedings on the grounds that debiting the costs to the expense ledger account does not mean writing off. The Learned Commissioner has also found that the appellants have maintained records of the receipt and usage of the inputs used in the manufacture of such pre-launch series of cars. We find that Shri Bhaskar Swaminathan, GM Finance & Account of the appellants in his statement dated 18/01/2010 & 29/04/2010 submitted the details of pre-series cars manufacture and cleared. We also find that vide letter date 10/05/2010, Shri Bhaskar has submitted invoice/ bill of entry wise details of inputs and the credit availed by them on the same. Therefore, we find that the allegation of non-maintenance of record is not proved. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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