A Division Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi set aside reversal of Cenvat Credit on the ground of failure to identify details of inventory for which general provision were made.
The issue involved in this appeal is whether the provisions of Rule 3(5)(B) of CCR, 2004 are attracted in case of making a general provision in the books of account for slow moving or non-moving inventory, without reducing the value of such inventory.
Pursuant to audit for the period 2014-15 up to june 2017, it appeared to revenue that the appellant, M/s Jaisawal Neco Industries Ltd have created a provision for non/slow moving inventory. However, they have not reversed an amount towards Cenvat credit availed in respect of the value of such provision, in terms of Rule 3(5)(B) of the Cenvat Credit Rules (CCR).
The appellant expressed their disagreement with audit objection stating that mere creation of provision for slow moving/non-moving inventory in the books of account, in compliance with the accounting standards cannot be construed as a provision for writing off the inventory. Such slow moving/non-moving inventory were not obsolete, were still of use and hence, not reduced off from the inventory. The same have only been shown at net realisable value, as per requirement of accounting standard Ind AS-2.
The appellant have only created a general provision for slow/non-moving inventory and have admittedly not written of the inventory from the inventory or the asset account. In actuality, such provision have been made by appropriation in the profit and loss account, without writing of any amount/value from the asset/inventory account.
Rule 3(5B) of CCR is attracted only when the value of the asset and/or inventory is written off fully or partially or wherein any specific provision to write off a fully or partially has been made in the books of account
A Single Bench consisting of Anil Choudhary, Judicial Member observed that “In the facts of the present case, the appellant has made a general provision, which is not attributable to any particular asset/inventory. Admittedly, revenue have not been able to identify the details of inventory or asset, for which the general provision has been made. It is further evident that the appellant has demonstrated that such provision has been made year to year by way of increasing or reducing the provision, depending on the usage of inventory as required.”
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