Appellant wins CENVAT re-credit case for Rs.34 lakh on provisionally written off inputs under Rule 3(5B)

CESTAT Chennai allowed the appeal regarding CENVAT re-credit of Rs.34,84,905/- on inputs provisionally written off. The appellant had taken re-credit on 30.06.2017 and carried it forward as transitional credit under GST. The Tribunal held that under Rule 3(5B) of CENVAT Credit Rules, 2004, re-credit is permissible when inputs are subsequently used in manufacturing final products and not fully written off. The appellant provided sufficient documentary evidence of utilization in manufacturing. The demand was unsustainable, extended limitation period was unjustified as the issue was interpretational, and consequently interest and penalty were also set aside.

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Issues Involved:
1. Eligibility of CENVAT re-credit on provisionally written-off inputs.
2. Applicability of extended time limit for demand and interest.
3. Justification for imposition of penalty.

Summary:

Issue 1: Eligibility of CENVAT re-credit on provisionally written-off inputs
The primary issue was whether the appellant was eligible to avail CENVAT re-credit on inputs that were provisionally written off in the books of accounts under Rule 3(5B) of CENVAT Credit Rules, 2004. The Tribunal found that the appellant had availed CENVAT re-credit of Rs.34,84,905/- on 30.06.2017 on inputs provisionally written off earlier and carried forward the same as transitional credit in ER 1 return filed before the introduction of GST. The Tribunal noted that the materials on which CENVAT credit was availed were not fully written off and that the appellant provided documents showing the subsequent usage of these inputs in the manufacture of final products. The Tribunal held that retaking of CENVAT credit was in order, as the appellant had an intention to utilize the inputs, which would have otherwise lapsed with the introduction of GST.

Issue 2: Applicability of extended time limit for demand and interest
The Tribunal found that the extended time limit for demand under Section 11A(4) of the Central Excise Act, 1944, was not justified. The Tribunal noted that the issue was interpretational in nature, and the ingredients required for extending the limitation were not satisfied in this case. Therefore, the invocation of extended period was not justified, and the demand of alleged ineligible CENVAT credit could not sustain.

Issue 3: Justification for imposition of penalty
Given that the demand could not sustain, the imposition of penalty and demand for interest also could not survive. The Tribunal observed that the Departmental authorities are free to verify the utilization of the impugned inputs during subsequent audits to ensure compliance.

Conclusion:
The Tribunal set aside the impugned Order-in-Appeal No. 55/2022 (CTA-1) dated 25.11.2022, granting consequential relief to the appellant as per law. The Tribunal emphasized that the appellant is eligible to retake the credit initially provisionally written off, provided the inputs are subsequently used in the manufacture of final products.

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