The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench has held that Cenvat Credit availed on inputs that were written off is not subject to reversal as the recovery mechanism under Rule 3(5B) of the Cenvat Credit Rules, 2004 has no retrospective effect.
The decision came in response to the appeal filed by M/s. GKN Driveline (India) Ltd. against the order passed by the Commissioner of Central Excise, New Delhi confirming a demand of Rs.58,55,479/- under Rule 3(5B) of the Cenvat Credit Rules, 2004, along with an equal amount of penalty under Rule 15 of the Rules, read with Section 11AC of the Central Excise Act, 1944.
The appellant, a manufacturer of motor vehicles, had availed Cenvat Credit on the excise duty paid on the inputs and capital goods as per the provisions of the Cenvat Credit Rules, 2004.
The appellant supplied motor vehicle parts to various automobile manufacturers and was bound by pre-existing contracts to supply parts for discontinued vehicle models for the next ten years. Consequently, they maintained inventory for slow-moving items.
The appellant had followed a conservative accounting policy, making provisions for writing off the value of the stock of direct materials in excess of the estimated future demand.
The revenue conducted an audit and contended that the appellant needed to reverse the Cenvat Credit availed on inputs that were written off as per Rule 3(5B) of the Cenvat Credit Rules. A show-cause notice was issued proposing a demand of Cenvat Credit of Rs.98,74,704/- on such inputs written off from January 2006 to December 2009.
The appellant, represented by Ms. Krati Singh and Ms. Shreya Khunteta contended that there was no recovery mechanism under Rule 3(5B) of the Cenvat Credit Rules during the relevant period, and the explanation introducing a recovery mechanism was applicable only from 01.03.2013. Therefore, the demand made for the period before this date is not valid.
The appellant argued that they were entitled to take credit for inputs if they were subsequently used, as per the proviso to Rule 3(5B).
The appellant also contended that they had already reversed and re-availed Cenvat Credit for some inputs, and this should be considered in their favour.
The appellant asserted that the demand for the period before March 2009 was time-barred, as the extended period of limitation could not be invoked without evidence of malafide or suppression of facts. The appellant argued that the demand was based solely on entries in their financial books and balance sheet, and no suppression or malafide intent was involved.
The respondent revenue, the Commissioner of Central Excise, Delhi-III, represented by Ms. Narender Singh reiterated the order and claimed that the explanation introduced in Rule 3(5B) was retrospective and applicable from the date it was issued.
The bench held that during the relevant period, which predates March 1, 2013, there was no provision for the recovery of Cenvat Credit under Rule 3(5B) and the explanation introduced via Notification No. 3/2013 dated 01.03.2013 that clarified the recovery mechanism could only be applied prospectively, not retrospectively.
This decision aligns with the previous judgment in Ericsson India Pvt. Ltd., wherein it was held that no recovery of Cenvat Credit could be affected when there was no recovery mechanism before March 1, 2013.
The bench further ruled that as no amount was due to be reversed under Rule 3(5B) on the date of issue of the show cause notice, the larger period for limitation could not be invoked.
The bench also noted that the entire demand was based on entries reflected in the financial books and balance sheet of the appellant, and there had been no suppression or malafide on their part. Therefore, the demand pertaining to the extended period of limitation was not sustainable and the demand for the normal period of limitation amounted to only Rs. 2,17,251/-.
The tribunal observed that since there was no recovery mechanism provided in the Cenvat Credit Rules during the relevant period and the demand was based on entries in financial records, the entire demand is liable to be set aside. In result, the two-member bench comprising Mr. S. S. Garg (Judicial Member) and Mr. P. Anjani Kumar (Technical Member) set aside the demand and allowed the appeal of the appellant with consequential relief, if any, as per law
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
