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Issues: (i) Whether the requirement of reversal of Cenvat credit under Rule 3(5B) of the Cenvat Credit Rules, 2004 could be applied to a provision for write-off first made before the rule came into force and carried forward in later years; (ii) Whether the amended Rule 3(5B), brought into force on 01.03.2011, could operate retrospectively so as to cover partial write-off or provision for partial write-off of inputs or capital goods.
Issue (i): Whether the requirement of reversal of Cenvat credit under Rule 3(5B) of the Cenvat Credit Rules, 2004 could be applied to a provision for write-off first made before the rule came into force and carried forward in later years.
Analysis: The provision for write-off was admittedly created in December 2006, while Rule 3(5B) was introduced only from 11.05.2007. The Court accepted that writing off goods and making a provision for write-off are not identical. However, once the provision was carried forward into subsequent financial years, the position had to be examined in the light of the rule then in force, and credit reversal could arise at that stage.
Conclusion: The plea that no reversal could ever arise merely because the provision was first created before 11.05.2007 was rejected.
Issue (ii): Whether the amended Rule 3(5B), brought into force on 01.03.2011, could operate retrospectively so as to cover partial write-off or provision for partial write-off of inputs or capital goods.
Analysis: The amendment of 01.03.2011 expressly expanded the rule to include partial write-off and provision for partial write-off. The Court held that this enlargement could not be applied retrospectively. Therefore, if the assessee's claim that the entries represented only partial write-off was correct, the amended provision would not justify reversal for the earlier period. As the factual aspect had not been properly examined, the matter required fresh adjudication.
Conclusion: The amended rule was held to be prospective only, and the matter was remanded for de novo consideration of whether the write-off was partial.
Final Conclusion: The impugned order was set aside and the matter sent back for fresh adjudication, with the assessee's plea on partial write-off and limitation left to be examined on merits.
Ratio Decidendi: A statutory amendment enlarging the scope of Cenvat credit reversal to include partial write-off cannot be applied retrospectively, and entitlement to reversal must be determined according to the rule in force during the relevant period.
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