CENVAT credit reversal limited to actual input cost where reduced stock value also included non-input R&D expenditure.

CENVAT credit reversal could not be demanded on the entire amortised reduction in closing stock value where the reduced amount reflected both input cost and non-input expenditure such as salaries, power, overheads, depreciation and interest. The assessee had already reversed credit on the raw-material component, and its explanation was supported by records and a statutory auditor certificate. In the absence of contrary evidence showing that the whole reduced amount represented inputs on which credit had been availed, reversal was confined to the actual inputs consumed for research and development. The demand was therefore unsustainable and the assessee succeeded.

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Issues: Whether the entire amortised reduction in the value of closing stock had to be treated as written off inputs requiring reversal of CENVAT credit, or whether credit reversal was confined only to the inputs actually consumed for research and development purposes.

Analysis: The value reduced in the balance sheet comprised not only material inputs but also other expenditure such as salary and wages, power and fuel, factory overheads, depreciation and interest incurred over a period for research and development. The appellants had already reversed credit on the raw-material component, and their explanation was supported by statements and a statutory auditor certificate. No contrary evidence was produced by the Revenue to show that the entire reduced amount represented inputs on which credit had been taken.

Conclusion: The demand for reversal of credit on the entire amortised value was not sustainable, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeals succeeded with consequential relief in accordance with law.

Ratio Decidendi: Where the reduced book value includes both input cost and other non-input expenditure, CENVAT credit reversal cannot be demanded on the entire amount in the absence of evidence that the whole sum represents inputs on which credit was availed.

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