Cenvat credit need not be reversed for mere book write-off of inputs and spares kept in the factory.

Mere write-off of inputs and spares in the accounts does not by itself require reversal of Cenvat credit when the goods continue to remain in the factory and are capable of future use. The write-off was only a balance-sheet entry, with no finding of removal, destruction, deterioration, or incapacity for use. The later introduction of Rule 5B of the Cenvat Credit Rules, 2004 was subsequent and did not apply to the period in dispute. On these facts, the credit was not reversible and the related penalty and duty demand were unsustainable.

---

---

Issues: Whether Cenvat credit taken on inputs and spares was liable to be reversed merely because the value of such items had been written off in the books of account, when the goods continued to remain in the factory and were capable of future use.

Analysis: The inputs and spares had not been removed from the factory and there was no finding that they had been destroyed, deteriorated, or become incapable of use. The write-off was only for balance-sheet purposes. The later amendment introducing Rule 5B of the Cenvat Credit Rules, 2004 operated subsequently and was not applicable to the period in dispute. Prior tribunal decisions on the same issue had held that credit need not be reversed in such circumstances, particularly where the goods remained available for use in the factory.

Conclusion: Cenvat credit was not required to be reversed on the facts of the case, and the penalty and duty demand were unsustainable.

Ratio Decidendi: Mere write-off of inputs or spares in the accounts does not justify reversal of Cenvat credit unless the goods are removed, destroyed, or shown to be incapable of use.

---