Cenvat credit reversal not required for obsolete inputs still lying in factory before Rule 3(5B) came into force.

Before insertion of Rule 3(5B) on 11.05.2007, Cenvat credit was not required to be reversed merely because inputs were written off as obsolete in the books of account; reversal under Rule 3(5) applied only where the inputs were removed as such from the factory. As the disputed inputs remained physically in stock and were not removed, mere accounting write-off did not trigger reversal for the period in dispute.

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Issues: Whether, for the period prior to 11.05.2007, Cenvat credit was required to be reversed on inputs written off as obsolete in the financial records though the inputs continued to remain physically in the factory.

Analysis: Rule 3(5) of the Cenvat Credit Rules, 2004 applies where inputs or capital goods on which credit has been taken are removed as such from the factory. Rule 3(5B), which specifically covers full write-off in the books of account, came into force only on 11.05.2007 and therefore did not govern the period in dispute. The disputed inputs were not removed from the factory and remained in stock, and the earlier decisions relied upon support the position that mere write-off in the accounts does not by itself trigger reversal of credit before the amendment.

Conclusion: No reversal of Cenvat credit was required for the period prior to 11.05.2007 merely because the inputs were written off as obsolete in the financial accounts while still lying in the factory; the issue is decided in favour of the assessee.

Ratio Decidendi: Before insertion of Rule 3(5B) on 11.05.2007, Cenvat credit on inputs written off in the books of account was not reversible unless the inputs were actually removed as such from the factory.

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