Cenvat credit reversal on write-off provisions turns on actual credit availed; extended limitation and penalty fail absent suppression.

Rule 3(5B) of the Cenvat Credit Rules, 2004 requires reversal where inputs or capital goods are fully written off, or a full write-off provision is made in the books, and the reversal must track the credit actually availed on the relevant goods. The Tribunal rejected the plea that partial provision avoided the rule and treated the reversal obligation as applicable to the extent of credit attributable to fully provided-for or scrapped goods. On limitation and penalty, it held that an inventory-provision dispute without fraud, suppression, or intent to evade duty did not justify the extended period, and the penalty under Rule 15(2) read with Section 11AC was unsustainable.

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Issues: (i) Whether demand of CENVAT credit on partial provision or write-off of inputs and on finished goods treated as scrap was sustainable under Rule 3(5B) of the Cenvat Credit Rules, 2004; (ii) whether the show cause notice and demand could be sustained after payment of duty and interest, and whether the extended period of limitation and penalty were invocable; (iii) whether the Revenue was entitled to reduced penalty of 25% for the period prior to 08.04.2011.

Issue (i): Whether demand of CENVAT credit on partial provision or write-off of inputs and on finished goods treated as scrap was sustainable under Rule 3(5B) of the Cenvat Credit Rules, 2004.

Analysis: Rule 3(5B) requires reversal where the value of inputs or capital goods is written off fully, or where provision to write off fully is made in the books of account. The Tribunal held that the credit reversal is linked to the actual credit availed on the relevant goods and not to the convenience of reworking the reversal on a different basis. It further held that the assessee had to correlate the invoices to the goods on which provision to write off fully had been made and reverse the applicable credit. The plea that partial provision did not attract the rule was rejected for the extent of duty found payable on the provision value and scrapped goods.

Conclusion: The demand on the relevant CENVAT credit was upheld to the extent found payable, and the assessee did not succeed on this issue.

Issue (ii): Whether the show cause notice and demand could be sustained after payment of duty and interest, and whether the extended period of limitation and penalty were invocable.

Analysis: The Tribunal held that where the dispute concerned inventory provisions and the goods remained available in the factory, the matter was essentially one of interpretation of the CENVAT scheme and did not disclose fraud, collusion, suppression of facts, or intent to evade duty. It applied the principle of revenue neutrality and held that the extended period could not be invoked on the facts. The penalty imposed under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was therefore unsustainable. The normal period demand with applicable interest was, however, left to be worked out and confirmed.

Conclusion: The demand for the extended period and the penalty were set aside, while the normal period demand with interest was sustained.

Issue (iii): Whether the Revenue was entitled to reduced penalty of 25% for the period prior to 08.04.2011.

Analysis: Since the penalty itself was held unsustainable and set aside, the Revenue's prayer for extension of reduced penalty had no surviving basis.

Conclusion: The Revenue's appeal on reduced penalty was rejected.

Final Conclusion: The assessee obtained partial relief: the extended-period demand and penalty were set aside, the normal period duty liability with interest survived, and the Revenue's appeal for reduced penalty failed.

Ratio Decidendi: In a CENVAT reversal dispute founded on inventory provisions, the extended period and penalty cannot be invoked absent evidence of fraud, suppression, or intent to evade duty, and the reversal obligation under Rule 3(5B) is determined by the credit actually availed on the relevant inputs or capital goods written off fully or provided for fully.

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