2020 (3) TMI 147 - AT - Central Excise

Tribunal rules in favor of appellants, setting aside demand, penalty, and interest. Importance of proving allegations emphasized.

The Tribunal set aside the impugned order and allowed the appeal, ruling in favor of the appellants. The demand, penalty, and interest were also set ... Reversal of CENVAT credit on write off of capital goods - Application of amended Rule 3(5B) of the Cenvat Credit Rules - Prospective operation of statutory amendment - Requirement of departmental proof for full write off - Limitation and extended period where no reversal obligation existed - Machinery for recovery under Rule 14 applicable from 01.03.2013Reversal of CENVAT credit on write off of capital goods - Application of amended Rule 3(5B) of the Cenvat Credit Rules - Requirement of departmental proof for full write off - Liability to reverse CENVAT credit in respect of capital goods whose value was written off in the assessee's books for the period 1994-2010 and whether the department properly invoked extended limitation. - HELD THAT: - The Tribunal found no evidence on record that the appellants had written off the full value of the capital goods; the annexure to the show cause notice shows partial write offs (50%, 70%, 90%) effected during 1994 2010 and amounts thereafter carried forward, not fresh write offs after 2010. The amendment to Rule 3(5B) creating an obligation to reverse credit on partial write down was introduced with effect from 01.03.2011; further, the provision for recovery (by making Rule 14 applicable) was notified with effect from 01.03.2013. Consequently, for the period 1994 2010 there was no legal obligation to reverse credit on partial write off at the time the alleged write downs occurred, and there was no recovery machinery in place before 01.03.2013. The department must prove full write off to attract the pre existing rule permitting reversal for full write offs; no such proof exists here. Reliance on earlier tribunal decisions (including Ericsson India and Sanghavi Engineering) supports that the partial write down reversal obligation is prospective from 01.03.2011 and recovery under the amended regime could not be invoked for periods where no such obligation or recovery machinery existed. On these grounds the invocation of extended limitation and the demand based on the 1994 2010 credits could not be sustained. [Paras 6, 7, 8]Demand for reversal of CENVAT credit in respect of capital goods written off for the period 1994 2010 is not sustainable; impugned order set aside.Final Conclusion: The appeal is allowed; the impugned demand, interest and penalties are set aside as the requirement to reverse credit on partial write offs was introduced only from 01.03.2011 and recovery machinery from 01.03.2013, and there is no evidence of full write off for the period 1994 2010. Issues:1. Whether the appellants are liable to pay up the cenvat credit pertaining to the capital goods of which the values have been written off in their books account.Analysis:The case involved the appellants, engaged in manufacturing stainless steel products, who availed cenvat credit on inputs, capital goods, and input services. The issue arose when the department alleged a contravention of Rule 3 (5B) of Cenvat Credit Rules 2004, claiming that the appellants did not pay up the cenvat credit of Rs. 60,91,748/- taken on capital goods that were later written off in their books of account. The department issued a show cause notice proposing to demand the credit availed on capital goods written off. The original authority confirmed the demand, interest, and penalties. On appeal, the Commissioner (Appeals) reduced the demand to Rs. 43,23,059/-. The appellant challenged this before the Tribunal.The appellant's counsel argued that the requirement to reverse the credit on fully written off inputs/capital goods was introduced only from 11.5.2007 onwards. The appellant had partially written off the value of obsolete capital goods, not fully as alleged by the department. The counsel highlighted that the provision for paying up cenvat credit on partially written off capital goods was introduced only from 1.3.2011. The machinery for recovery of wrongly availed credit was introduced from 1.3.2013. The appellant relied on precedents to support their argument that the demand for credit availed from 1994-2010 and partially written off during that period could not be sustained due to the absence of recovery provisions before 1.3.2013.The department's representative contended that the appellants had fully written off the value of capital goods post-2010, supporting the findings of the impugned order. However, the Tribunal found that there was no evidence to prove full write-off, only partial write-offs of 50%, 70%, 90%. The Tribunal noted that the provision to reverse credit on partially written off value applied from 1.3.2011, while the provision for recovery of wrongly availed credit was introduced from 1.3.2013. Relying on precedents, the Tribunal held that the demand for credit availed from 1994-2010 and partially written off during that period could not be sustained due to the absence of recovery provisions before 1.3.2013.In conclusion, the Tribunal set aside the impugned order, allowing the appeal with consequential relief, if any. The demand, penalty, and interest were also set aside. The judgment emphasized the importance of proving allegations raised in show cause notices and the necessity of complying with legal provisions and timelines for recovery of wrongly availed credits.