2007 (1) TMI 368 - AT - Central Excise

Tribunal rules in favor of manufacturer in Modvat credit case, emphasizing no impact on credit for revalued assets

FEDERAL MOGUL AUTOMOTIVE PRODUCTS (I) P. LTD. Versus COMMR. OF C. EX., JAIPUR

The Tribunal ruled in favor of the appellant, a manufacturer of auto components, in a case concerning the reversal of Modvat credit on inputs shown as ... Cenvat/Modvat - Reversal of credit Issues:1. Reversal of Modvat credit on inputs shown as 'obsolete inventory written off' in the Balance Sheet.2. Interpretation of revaluation of assets and its impact on Modvat credit.3. Applicability of Circular No. 645/36/2002-CX regarding reversal of credit on fully written off inputs.Issue 1: Reversal of Modvat credit on 'obsolete inventory written off' inputsThe appellant, a manufacturer of auto components, had taken Modvat credit on certain inputs shown as 'obsolete inventory written off' in the Balance Sheet. A show-cause notice was issued, demanding reversal of the credit taken on these inputs. The appellant argued that as long as the inputs were still in stock and being used for production, reversal of credit was not required. The impugned order upheld the demand for reversal, leading to the present appeal challenging this decision.Issue 2: Interpretation of revaluation of assets and Modvat creditThe appellant contended that revaluation of assets, resulting in changes in input values, should not impact the Modvat credit taken. Citing precedents like BHEL Ltd. v. CCE and CCE v. Kinetic Motors Co. Ltd., the appellant argued that as long as the inputs were in stock and being utilized, the credit should not be reversed. The appellant further supported their argument by presenting a Chartered Accountant's certificate stating that the inputs were part of 'slow moving stock' and had not been discarded despite being shown as written off in the Balance Sheet.Issue 3: Applicability of Circular No. 645/36/2002-CXThe Departmental Representative (DR) relied on Circular No. 645/36/2002-CX, which stated that in cases where unused inputs are fully written off, the credit availed must be paid back. The DR argued that since the inputs were shown as 'written off' in the Balance Sheet, the credit should be reversed as per the Circular. However, the Tribunal referred to previous decisions, emphasizing that the mere revaluation of assets does not impact the Modvat credit, especially when the inputs are still held in stock and used for manufacturing purposes.In conclusion, the Tribunal held that the demand for reversal of Modvat credit on inputs shown as 'obsolete inventory written off' was not sustainable. The impugned order was set aside, and the appeal was allowed in favor of the appellant, with any consequential relief to be provided. The Tribunal clarified that revaluation of assets does not affect the Modvat credit as long as the inputs are in use for manufacturing, reaffirming the settled principle that the value changes of inputs do not alter the quantum of credit already availed.