2015 (1) TMI 30 - AT - Central Excise

CENVAT Credit - Cenvat credit in respect of certain items of spares of capital goods - writing of the slow moving capital goods spares - notification no. 26/07 CE (NT) sub-rule 5B - Reversal of CENVAT Credit - Penalty u/s 11AC - Held that - provision for writing off of slow moving spares was made for the first time in December, 2006 and the Cenvat credit availed in respect of the spares was of ₹ 8,82,465 - as the writing of inputs/ capital goods and making provision for writing off of inputs/capital goods cannot be equated. In this case, while at the time of making provision for writing off of slow moving spares in December 2006, Rule 3(5B) was not there, this sub-rule had come into force when the provision for writing off was carried forward in the next financial year and at that time, the Cenvat credit should have been reversal. - amended provisions of Rule 3(5B) effective from 1.3.11 cannot be applied retrospectively. Therefore, if the appellant s claim that the provision made by them was for partial writing off of slow moving spares and not for full writing off, there would be no requirement to reverse the credit . The appellant s plea is that they had furnished evidence in this regard along with reply to show cause notice, but the same has not been considered. The impugned order is therefore set aside and the matter is remanded to the original adjudicating authority for de novo adjudication. In the course of de novo proceedings, the appellant s plea that the provision made by them December 2006 and carried forward to subsequent financial years was for partial writing off and not for full writing off of slow moving spare is to be examined and if their claim is found to be correct, they would not be required to reverse the Cenvat credit. - Decided in favour of assesse.

Summary

Issues:
1. Reversal of Cenvat credit on slow-moving capital goods spares.
2. Applicability of Rule 3(5B) of the Cenvat Credit Rules, 2004.
3. Interpretation of provisions for partial writing off of spares.
4. Consideration of evidence in determining Cenvat credit reversal.

Analysis:
1. The appeal involved the question of reversal of Cenvat credit on slow-moving capital goods spares by the appellant, a manufacturer of chewing gum and confectionery items. The appellant had availed Cenvat credit on inputs and capital goods, including certain spares. A provision for writing off the slow-moving capital goods spares was made in December 2006, which involved a significant duty amount. Subsequently, a notification in 2007 introduced Rule 3(5B) of the Cenvat Credit Rules, requiring the reversal of Cenvat credit if inputs or capital goods were written off fully or provision was made for it. The show cause notice was issued in 2011 for not reversing the Cenvat credit, leading to the current appeal.

2. The main contention revolved around the applicability of Rule 3(5B) introduced in 2007 to the provision made in 2006. The appellant argued that the rule should not apply retrospectively, citing a tribunal judgment. However, the tribunal differentiated between writing off and making provisions for writing off, emphasizing that provisions carried forward to subsequent years constituted fresh provisions, necessitating Cenvat credit reversal as per the rule. The tribunal agreed with this interpretation, highlighting the distinction between writing off and provision for writing off.

3. Another aspect was the interpretation of the provisions for partial writing off of spares. The appellant claimed that the provision made in 2006 was for partial writing off, not full writing off, which would exempt them from Cenvat credit reversal. The appellant provided evidence to support this claim, arguing that the amended provisions effective from 2011 should not be applied retrospectively. The tribunal acknowledged this argument and remanded the matter for further adjudication to determine if the provision was indeed for partial writing off.

4. The tribunal also emphasized the importance of considering the evidence provided by the appellant regarding the nature of the provision made in 2006. The tribunal set aside the impugned order and remanded the case to the original adjudicating authority for a fresh examination. The authority was directed to assess whether the provision made by the appellant was for partial writing off and, if proven, the appellant would not be required to reverse the Cenvat credit. Additionally, the limitation aspect was to be examined during the fresh proceedings to ensure a comprehensive review of the case.

In conclusion, the tribunal's decision highlighted the nuanced interpretation of Cenvat credit rules, emphasizing the distinction between writing off and provision for writing off, and the importance of considering evidence in determining the reversal of credits. The case was remanded for further examination to ascertain the nature of the provision made by the appellant and its implications on Cenvat credit reversal.