Inventory reserve was treated as a reversible entry, so Rule 3(5B) was held prima facie inapplicable.

Creation of a reserve for slow-moving and excess inventory was treated as a reversible accounting entry, not a final write-off of inputs or their value. Because substantial quantities moved to the reserve were later dereserved and used, and excess stock could be adjusted through future procurement, the inputs were not yet written off in the books of account. On that basis, Rule 3(5B) of the CENVAT Credit Rules, 2004 was held prima facie inapplicable, and the balance of the demand was waived with recovery stayed pending appeal.

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Issues: Whether creation of a reserve for slow-moving and excess inventory amounted to write-off of inputs and value of inputs so as to attract Rule 3(5B) of the CENVAT Credit Rules, 2004, and justify waiver of pre-deposit and stay of recovery.

Analysis: The reserve created for slow-moving and excess inventory was treated as an initial and reversible accounting step, not a conclusive write-off. The material on record showed that substantial quantities moved to the reserve were subsequently dereserved and put to use. The excess inventory could also be addressed through future procurement adjustments. In these circumstances, the inputs and their value could not, at this stage, be regarded as written off in the books of account.

Conclusion: The appellant established a prima facie case that Rule 3(5B) was not attracted, and the balance of the demanded dues was waived with recovery stayed pending disposal of the appeal.

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