Cenvat credit reversal not required for written-off inputs where the pre-amendment rule contained no reversal provision.

For the period before insertion of Rule 3 sub-rules (5B) and (5C), Cenvat credit could not be reversed merely because inputs or stores and spares were written off or their value was reduced in the books. The applicable statutory framework at that time contained no reversal mechanism for accounting diminution alone, and a reduction in stock value did not, by itself, establish that the goods were not physically available. On that basis, the demand and penalty were not sustainable, and the appellate relief followed.

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Issues: Whether Cenvat credit was liable to be reversed on inputs and stores/spares written off in the books for a period prior to insertion of sub-rules (5B) and (5C) in Rule 3.

Analysis: The disputed period was prior to the amendment introducing sub-rules (5B) and (5C) in Rule 3. The Court relied on High Court authority holding that, for such prior periods, there was no provision requiring reversal merely because inputs were written off or their value was reduced in the accounts. It was also noted that accounting diminution in stock value does not equate to non-availability of physical stock, and that the departmental demand could not be sustained for a period when the statutory reversal mechanism was absent.

Conclusion: The appellant was not required to reverse the Cenvat credit, and the demand and penalty could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: For a period prior to the insertion of the relevant reversal provisions, Cenvat credit cannot be demanded back merely because the inputs or spares were written off or devalued in the books, so long as the statute then in force did not provide for such reversal.

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