TaxTMI 
TaxTMI 
2024 (6) TMI 1532
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....ut services, for use in or in relation to the manufacture of the said final products. During the disputed period, a Special Audit under the provisions of Section 14A of the Central Excise Act, 1944 was ordered by the jurisdictional Commissioner of Central Excise, pursuant to which the audit wing of the department had conducted the audit of the books of accounts maintained by the appellants. During audit of the records, the officers of the department observed that the appellants had made ad-hoc provisions for write-off of inventory of inputs at the end of a financial year, which were immediately reversed at the beginning of the next financial year. It was further observed that the appellants did not reverse CENVAT Credit on such provisions for write-off being made by them in their books of accounts. Accordingly, the audit wing had concluded that the accounting practice followed by the appellants were not in consonance with the provisions contained in Rule 3(5B) read with Rule 9(5) of the CENVAT Credit Rules, 2004. On interpreting such statutory provisions, it was contended by the audit wing that where provision is made to write-off the inputs, whether partially or fully in the books....
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....counting entry, to account for the inventory at its correct value i.e., cost or net realizable value, whichever is lower. This process in accounting parlance, is known as 'writing down' the value of inventory, even though, the inventory continues to be physically available in the factory of the company, which is required to be used in the manufacture of dutiable excisable goods, in the normal course. In other words, the said provisional entry is made only for accounting purposes and the same is reversed on the very next day, to write back the value of inventory in the books of accounts. However, the CENVAT scheme has been designed in the way to avoid cascading effect of input taxes and thus, it has been provided in the said statute that when the inputs are no longer to be used in the manufacture of excisable goods and written off from the books either partially or fully, then the assessee is required to reverse the CENVAT credit so availed on such inputs. The statute also provides for restoration of such credit on the very next day, when such written off inventory item is put to use again. 5. The appellants, being the incorporated body under the Act of 1956, also adhere to such ....
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....s account. A full reduction in an asset indicates it is not worth anything (has no future benefit) due to some occurrence. An example is the destruction of a machine in a fire when the company has no insurance and the machine no salvage value. 2. elimination of a specific customer's account balance because of uncollectibility, as in the case of a bankruptcy. • A Dictionary of Accounting (Oxford) 4th edition write off 1. To reduce the value of an asset to zero in a balance sheet. An expired lease, obsolete machinery, or an unfortunate investment would be written off. 2. To reduce to zero a debt that cannot be collected (see BAD DEBE). Such a loss will be shown in the *profit and loss account of an organization. • BLACK's Law Dictionary (8th Edn) WRITE OFF write off,vb. To remove (an asset) from the books, esp. as a loss or expense < the partnership wrote off the bad debt>. See TAX WRITE-OFF. - write-off,n. 4.5 From the plain reading of the above definitions of the term "write off", it can be construed that write off is term used wherein the asset is permanently lost on account of pilferage, obsol....
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....l commonly designated as market." ... Emphasis Supplied XXX XXX XXX 4.7 Can such valuation of inventory from time to time and on basis of accounting standards referred above be equated to "write off" or "making the provision of write off" as used in Rule 3 (5B) of The CENVAT Credit Rules, 2004. Admittedly the goods in respect of which demand for reversal of CENVAT credit has been made have been used in the production of the finished goods which are cleared on payment of duty. Further revenue has gone on the basis of monthly inventory valuation without even co-relating the same with the Annual Financial Statements i.e. Balance Sheet and Profit and Loss Account of the Appellant. As per the appellant the entries made in the respect of the slow moving items in inventory are reversed subsequently in the next month will neutralize each other, without having any impact on the total inventory at the closure of financial year. Even the auditors who value the stock at the closure of financial years will point out if any discrepancies exist in the actual physical stock of inventory and inventory records. Without making any reference to such financial statements can ....