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Issues: (i) Whether suo motu re-credit of wrongly debited Cenvat credit in the RG23A Part-II register was permissible as a mere adjustment; (ii) whether credit taken on returned/rejected goods sold as scrap was admissible; and (iii) whether penalty under the Cenvat Credit Rules was sustainable.
Issue (i): Whether suo motu re-credit of wrongly debited Cenvat credit in the RG23A Part-II register was permissible as a mere adjustment.
Analysis: The reversal in question was made without any final legal determination and only on the basis of audit directions. When the assessee later found that part of the credit was not ineligible, the correction was nothing more than an arithmetical adjustment of the credit account. The Tribunal distinguished cases where the debit represented a payment of duty requiring a refund claim, and treated the present adjustment as one falling within the line of decisions permitting re-credit.
Conclusion: In favour of the assessee. Suo motu re-credit of the wrongly debited amount was permissible.
Issue (ii): Whether credit taken on returned/rejected goods sold as scrap was admissible.
Analysis: The assessee failed to explain any manufacturing process on the rejected or returned goods. The record supported the finding that the goods did not undergo a process amounting to manufacture, and the credit should have been reversed at the time of clearance. The amount attributable to this item was therefore an incorrect utilisation of credit.
Conclusion: Against the assessee. The credit relating to the returned/rejected goods was inadmissible and the demand to that extent was upheld.
Issue (iii): Whether penalty under the Cenvat Credit Rules was sustainable.
Analysis: The assessee had reversed credit and debit entries without properly examining the admissibility of credit on the scrap-related clearances. In view of the incorrect availment and utilisation of credit, the penal provision was attracted.
Conclusion: Against the assessee. The penalty was upheld.
Final Conclusion: The dispute was allowed only to the extent of permitting the assessee's re-credit for the wrongly reversed amount, while the demand relating to the inadmissible credit on returned/rejected goods and the penalty were sustained.
Ratio Decidendi: A mere correction of a wrongly made credit debit entry in the Cenvat account is permissible as an adjustment, but where the amount represents inadmissible credit on goods that did not undergo manufacture, the credit must be reversed and penalty may follow.
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