Tribunal grants appeal, sets aside demand under Cenvat Credit Rules with penalty, citing lack of recovery mechanism.

The Tribunal allowed the appellant's appeal, setting aside the demand under Rule 3(5B) of the Cenvat Credit Rules, 2004, with penalty, citing lack of a recovery mechanism before 01.03.2013. The demand for reversal of Cenvat Credit on slow-moving items was also deemed unsustainable. The appeal was granted with consequential relief, and the decision was rendered on 30.08.2023.

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Issues involved:
The appeal challenges the order confirming demand under Rule 3(5B) of the Cenvat Credit Rules, 2004, with penalty, based on the reversal of Cenvat Credit availed on inputs written off by the appellant.

Summary of Judgment:

Issue 1: Demand under Rule 3(5B) of Cenvat Credit Rules, 2004
The appellant, engaged in manufacturing motor vehicles, availed Cenvat Credit on inputs and capital goods. The dispute arose when the department demanded reversal of Cenvat Credit on inputs written off by the appellant. The Commissioner confirmed a demand of Rs. 58,55,479 under Rule 3(5B) along with penalty. The appellant challenged this demand.

Decision:
The Tribunal held that during the relevant period, there was no recovery mechanism under Rule 3(5B) of the Cenvat Credit Rules. The introduction of a recovery mechanism from 01.03.2013 cannot be applied retrospectively. Citing various precedents, the Tribunal concluded that the proceedings initiated under Rule 14 of Cenvat Credit Rules read with Rule 3(5B) were not sustainable and dropped the demand.

Issue 2: Reversal of Cenvat Credit on slow-moving items
The appellant argued that under Rule 3(5B), they were required to reverse credit on slow-moving items but could take credit if these items were subsequently used. The appellant had released provisions for items written off after 11.05.2007. The appellant contended that they only needed to reverse a specific amount already done so.

Decision:
The Tribunal found that the appellant had followed commercial practices by making provisions for writing off Cenvat Credit on inputs. As there was no recovery mechanism before 01.03.2013, the demand for reversal of Cenvat Credit was not sustainable. The Tribunal allowed the appeal, setting aside the demand.

Issue 3: Limitation and interest
The appellant argued that the demand prior to March 2009 was time-barred, and the extended period of limitation could not be invoked as regular audits were conducted. The appellant also contended that interest could not be demanded if Cenvat Credit was not utilized.

Decision:
The Tribunal held that as there was no recovery mechanism before 01.03.2013, the demand was not sustainable. The demand pertaining to the extended period of limitation was set aside, and the appeal was allowed with consequential relief.

Conclusion:
The Tribunal allowed the appellant's appeal, setting aside the demand under Rule 3(5B) of the Cenvat Credit Rules, 2004, with penalty. The decision was pronounced on 30.08.2023.

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