Revenue cannot recover CENVAT credit on written-off inputs under Rule 3(5B) for periods before 2013 amendment (5B)

CESTAT Bangalore allowed the appeal regarding reversal of CENVAT credit on written-off inputs under Rule 3(5B) of Cenvat Credit Rules, 2004. Following precedents in Hewlett Packard India Sales, Ericsson India, and GKN Driveline cases, the Tribunal held that erroneous availment of CENVAT credit could only be recovered after insertion of recovery provision through Notification No.3/2013-CE(NT) dated 01.03.2013. Since the recovery period pertained to 2006-07 to 2008-09, before the amendment's effective date, the impugned order was set aside.

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Issues:
Appeal against Order-in-Original No.24/2012 dated 28.03.2013 passed by the Commissioner of Central Excise, Bangalore.

Analysis:
The case involves the appellant, engaged in manufacturing various products falling under different chapters of the Central Excise Tariff Act, 1985. The department discovered that the appellant failed to reverse the credit involved on inputs written off as required under Rule 3(5B) of the Cenvat Credit Rules, 2004. A show-cause notice was issued for recovery of credit amounting to Rs.1,14,03,656/- for the period 2006-07 to 2008-09. The demand was confirmed with interest and penalty, leading to the present appeal.

The appellant argued that they did not completely write off the value of inputs and that the provision to reverse credit on partially written off inputs came into effect only from 01.03.2011, making it inapplicable retrospectively. They cited various judgments to support their contention. The appellant also highlighted that the recovery provision was inserted to Rule 3(5) only from 01.03.2013, further challenging the demand based on this ground.

The Revenue, on the other hand, reiterated the findings of the Commissioner, stating that the appellant failed to prove that the inputs in question were used in manufacturing the final products. After hearing both sides, the Tribunal examined the facts and legal provisions closely.

The Tribunal referred to previous judgments and held that the recovery of the cenvat credit by the Commissioner was erroneous. It emphasized that the recovery mechanism introduced through an Explanation to Rule 3(5) only from 01.03.2013 could not be applied retrospectively. The Tribunal pointed out that the Department was aware of the credit adjustment since February 2007, and the show-cause notice was issued after two years, making the invocation of the extended period of limitation unsustainable.

Based on the precedents and the period of recovery being 2006-07 to 2008-09, the Tribunal set aside the impugned order and allowed the appeal with consequential relief as per law. The decision was pronounced in open court, concluding the matter in favor of the appellant.

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