Cenvat credit reversal not required for partially written-off inputs later used in manufacture before Rule 3(5B) amendment

Cenvat credit was not required to be reversed where inputs were only partly provided for as obsolete in the books, remained in inventory, and were later used in manufacture. The tribunal noted that the specific write-off rule, Rule 3(5B), came into force only from 01.03.2011, and the recovery mechanism for such cases was introduced later by Notification No. 3/2013-CE (N.T.) dated 01.03.2013. For the period before those amendments, and following the cited precedent, reversal of credit was not warranted. The demand for reversal and recovery was therefore set aside.

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Issues: Whether cenvat credit was liable to be reversed in respect of inputs for which only a partial provision for obsolescence/write-off had been made in the books of account, where the inputs were subsequently used in manufacture and the dispute period was prior to the amendment introducing Rule 3(5B) and the recovery mechanism.

Analysis: The inputs were not fully written off but only provisionally reduced in the books under the company policy, and they continued to remain available in inventory and were later used in manufacture. The amended version of Rule 3(5B), which specifically dealt with write-off situations, came into force from 01.03.2011, while one of the disputed periods was earlier. The recovery machinery for amounts attributable to such write-off was introduced only later by Notification No. 3/2013-CE (N.T.) dated 01.03.2013. In these circumstances, and following the cited precedent, reversal of credit was not warranted and the demand could not be sustained.

Conclusion: The demand for reversal and recovery of cenvat credit was unsustainable and was set aside in favour of the assessee.

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