In a ruling in favour of Steel Authority of India ( SAIL ), the Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that writing down the inputs for Income-tax purposes cannot be equated with writing-off the inputs under Rule 3 (5B) of CCR ( Cenvat Credit Rules, 2004 ).
The appellant/assessee is in the business of manufacturing of Billets, Slabs, angles, TMT Bar, Channels etc. They were also availing the facility of Cenvat Credit on inputs, capital goods and input services as provided under Cenvat Credit Rules, 2004.
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While auditing the records of the appellant, it was pointed out by the auditors that the appellant has made the provision against the stock value in the Financial Year 2016 & 17, for non-moving/ obsolete /surplus inventories on which the Cenvat Credit was not reversed by the appellant as is required under rule 3 (5B) of CCR 2004.
Through show cause notice Cenvat Credit amounting to Rs.3,30,81,463/- was proposed to be reversed alongwith the interest and the penalty of the same amount. While adjudicating the proposal, the original adjudicating authority has ordered the partial recovery by dropping the balance demand alongwith the interest. Penalty of the same amount has been imposed upon the appellant.
The assessee contended that the appellant procures various raw-material; store and spare the same to undertake its manufacturing activity. In accordance with the generally accepted accounting principle, the appellant maintains an “Accounting Manual‟ which records the accounting practices followed by it for maintaining the books of account, wherein the provision has been made in respect of slow moving/ non-moving inventory.
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The assessee argued that appellant was not required to reverse the Cenvat Credit as the value of inventory was never written off. The Department has wrongly invoked rule 3 (5B) of CCR 2004. The department contended that the appellant in their balance sheet have declared the value for an amount of Rs.2814.81 Lakhs and they made the provision for Rs.2007.37 Lakhs for non-moving /obsolete/ surplus inventory and also created a provision of Rs.2007.37 Lakhs for the same. However they had not paid any amount for reversal of Cenvat Credit taken towards such credit.
The department urged that Rule 3 (5 B) of CCR 2004 has rightly been invoked. The Cenvat Credit is required to be written-off when the inventory is declared as obsolete. By not reversing the said Cenvat Credit and not revealing it to the Department about the provisions of writing off their inventory, the appellants have rightly been held responsible for suppressing the relevant facts.
The single bench of Rachna Gupta ( Judicial Member ) has observed that there is no denial to the fact that the non/slow moving inventory has at a certain stage being used by the appellant in its manufacturing process. Hence the inventory which had not become obsolete cannot be called as the entry written off. As already observed above Rule 3(5B) CCR is invokable in relation to written off entry only.
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The tribunal held that provisions of rule 3 (5B) CCR are applicable only when the value of asset and or inventory is written off fully or partially, or wherein any specific provision to write-off fully or partially has been made in the books of accounts.
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