Cenvat credit on written-off inputs need not be reversed where the rules impose no consumption time limit.

Validly taken Cenvat credit on inputs is not reversible merely because the inputs are written off in the books of account. The credit scheme did not prescribe any time limit for consumption of inputs, and the distinction between accounting write-off for tax or balance-sheet purposes and the physical availability or use of inputs in manufacturing was material. A board circular cannot create a reversal liability where the governing rules do not provide one, and a mere reduction in book value does not justify duty-backed reversal of credit.

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Issues: Whether Cenvat credit taken on inputs written off in the books of account is required to be reversed.

Analysis: The credit scheme did not prescribe any time limit within which inputs had to be consumed, and validly taken credit was not liable to reversal merely because the inputs remained unused for some period. The distinction between accounting write-off for income-tax or balance-sheet purposes and the physical availability or use of inputs in manufacturing was material. A board circular could not impose a liability to reverse credit when the governing rules did not provide for such reversal, and mere diminution in book value did not justify demand of duty-backed reversal of credit.

Conclusion: Cenvat credit was not required to be reversed merely because the inputs were written off in the books of account; the issue was decided in favour of the assessee.

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