Cenvat credit cannot be denied merely for accounting write-off when inputs remain in stock and are later used in manufacture.

Mere creation of a provision for obsolescence or write-off of inputs in the books does not justify reversal or recovery of Cenvat credit where the goods remained in inventory and were later used in manufacture. The recovery mechanism under Rule 3(5B) for credit attributable to written-off inputs applied only from 01.03.2013, and the period in dispute predated that amendment. On that basis, and following earlier decisions, the demand for credit, interest and penalties was held unsustainable and the appeal was allowed.

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Issues: Whether cenvat credit was required to be reversed or the demand sustained merely because provision for obsolescence/write-off of inputs was made in the books of account, when the inputs were subsequently used in manufacture and the recovery mechanism under Rule 3(5B) was introduced only later.

Analysis: The appellant had made only a partial provision in the accounts for obsolescence of stores and spares, while the inputs remained in inventory and were later used in manufacture. The record also showed that the recovery machinery for credit attributable to written-off inputs under Rule 3(5B) came into force only from 01.03.2013 through Notification No. 3/2013-CE (N.T.). In these circumstances, and following the earlier decisions relied upon, the mere accounting write-off did not justify denial or recovery of credit for the period in dispute.

Conclusion: The demand of cenvat credit, interest, and penalties was not sustainable, and the appeal was allowed.

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