2019 (4) TMI 1146 - AT - Central Excise

Appellant not liable to reverse CENVAT credit on obsolete materials

The appellant was found not liable to reverse the CENVAT credit on raw materials shown as obsolete in the balance sheet. The Tribunal determined that the ... CENVAT Credit - raw materials, which were shown as obsolescence - provisions has been made in their balance sheet during the relevant period i.e. April 2003 to March 2007 - HELD THAT:-The show cause notice was issued on the basis of balance sheet alleging that the provisions made for obsolescence raw material were written off from the Books of Account, accordingly, by virtue of Board’s circular issued in 1995, the appellant is required to reverse the credit. Nowhere it is shown that the written-off materials were cleared from the factory without reversal of credit or without payment of appropriate duty. Otherwise also, the period involved in the present case is prior to the relevant amendment made to CENVAT Credit Rules, 2004, by way of insertion of the Rule 3(5B) on written off inputs which came into effect on 11th May 2007. The Hon’ble High Court of Bombay in the case of COMMISSIONER OF C. EX., NAVI MUMBAI VERSUS HINDALCO INDUSTRIES LTD. [2011 (6) TMI 662 - BOMBAY HIGH COURT] and Hon’ble High Court of Gujarat in COMMISSIONER OF CENTRAL EXCISE VERSUS INGERSOLL RAND (INDIA) LTD. [2013 (2) TMI 32 - GUJARAT HIGH COURT] has categorically held in the cases that the said rules cannot be made applicable retrospectively even though the circular directs for reversal of credit on the written-off goods. In the absence of any evidence adduced by Revenue in making a specific allegation that raw materials were cleared from the factory without reversal of credit or payment of duty, there is no merit found in the impugned order - appeal allowed - decided in favor of appellant. Issues:- Whether the appellant is required to reverse the CENVAT credit on raw materials shown as obsolescence in the balance sheet.- Applicability of circulars and rules regarding reversal of credit on written-off goods.- Allegations of suppression of facts and extended period of limitation.Analysis:1. The case involved an appeal against a demand notice issued by the Revenue for the recovery of a substantial amount due to alleged discrepancies in the treatment of obsolescence raw materials and finished goods in the appellant's balance sheet during the period from April 2003 to March 2007.2. The appellant argued that the provisions made for obsolescence materials in the balance sheet were for inventory valuation purposes and were later reversed through journal entries. The appellant contended that the circular relied upon by the Revenue did not apply to finished goods and that the amended provision under CENVAT Credit Rules, 2004, could not be retroactively enforced for the relevant period.3. The Revenue's position was that the appellant failed to produce evidence of clearing obsolete materials with appropriate duty payments during a departmental visit to the factory premises. The Revenue insisted on the reversal of credit based on the provisions made in the balance sheet and the circular issued by the Board.4. The Tribunal analyzed the contentions of both parties and focused on whether the appellant was obligated to reverse the CENVAT credit on raw materials shown as obsolete in the balance sheet. The Tribunal found that the provisions made for obsolescence materials were for valuation purposes and were not actually written off, as claimed by the Revenue. Moreover, the Tribunal noted that the relevant period predated the amendment to CENVAT Credit Rules, 2004, which introduced the requirement for reversal of credit on written-off goods.5. Citing precedents and legal provisions, the Tribunal concluded that the appellant was not liable to reverse the credit on the raw materials in question. The Tribunal dismissed the Revenue's allegations of clearance without credit reversal or duty payment due to lack of evidence. Consequently, the impugned order was set aside, and the appeal was allowed with appropriate relief as per the law.6. The judgment highlighted the importance of legal provisions, circulars, and precedents in determining the applicability of rules regarding the reversal of credit on written-off goods. It emphasized the need for clear evidence to support allegations of non-compliance and the significance of the timeline in applying relevant legal amendments.