The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Bangalore recently set aside an Order-in-Original passed by the Commissioner of Central Excise, Bangalore against Bharat Heavy Electricals Limited ( BHEL ) warranting recovery of credit of Rs.1,14,03,656/- for the period during 2006-07 to 2008-09, in light of lack of statutory recovery mechanism in effect during the concerned period.
BHEL is a central public sector undertaking and the largest government-owned electrical/ industrial technology company engaged in the manufacture of ARCS panels, semiconductor devices and static converters falling under different chapters of Central Excise Tariff Act, 1985.
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The facts in brief follow an audit conducted on the Appellant’s books of accounts revealing that the Appellant had written off the value of inputs used for manufacture, but failed to reverse the credit involved on the said inputs as required under Rule 3(5B) of the Cenvat Credit Rules, 2004.
Subsequently, the Appellant was issued with Show-Cause Notice and demand order for the recovery of credit of Rs.1,14,03,656/- along with interest and penalty for the period from 2006-07 to 2008-09, which were confirmed by the Respondent, leading to the present Appeal.
Counsel for the Appellant, Syed Peeran submitted that BHEL procures and imports inputs for manufacture and duly avails credit of duty paid on such inputs. Further submitted that the Appellant periodically ascertains market value of raw materials as per company guidelines and follows provisions made to write off the value of inputs in their books of account for the slow moving stock in obsolete store with a write-off value limit of 95%, provided that the stock is older than 8 years.
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It was further contended that the provision to reverse credit on the value of inputs in the event it is written off partially came into law through explanation inserted to Rule 3(5) for recovery in the event Central Value Added Tax (CENVAT) credit attributable to the value of inputs are not reversed fully or partially written off and put into effect from 01.03.2011.
The two-member Bench of CESTAT constituted by D.M. Misra, Judicial Member and R Bhagya Devi, Technical Member referenced the findings of the same Tribunal in Hewlett Packard India Sales Pvt. Ltd. Vs. CST, LTU, Bengaluru (2024) to affirm that there was no recovery mechanism under Rule 3(5B) of the Cenvat Credit Rules, 2004 during the subject period and the explanation permitting recovery of CENVAT Credit under Rule 3(5B) was introduced by Notification No. 3/2013 dated 01.03.2013.
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In light of the findings, CESTAT set aside the impugned order citing inability to retrospectively apply the provisions of the updated Rule 3(5B) of the Cenvat Credit Rules, 2004 for recovery of credit during the period from 2006-07 to 2008-09.
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