The Chennai Bench of Customs Excise & Service Tax Appellate Tribunal ( CESTAT ) set aside the excise order, ruling that recovery of Central Value Added Tax ( CENVAT ) credit and interest for capital goods under Rule 3(5b) invoking Rule 14 of the CENVAT Credit Rules, 2004 was not allowable for the period before March 2013.
Amaravathi Co-op Sugar Mills Ltd., the appellant is a manufacturer of sugar who availed CENVAT credit on certain capital goods. During the review of their Balance Sheets (2009-10 to 2011-12), it was found that they made provisions for non-moving and obsolete inventory items without reversing the CENVAT credit as required by Rule 3(5B) of the CENVAT Credit Rules, 2004.
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The Original Authority ordered the recovery of Rs. 2,83,219 along with interest and a penalty. On appeal, the Commissioner (Appeals) confirmed the recovery of credit and interest but waived the penalty.
The appellant challenged the recovery of duty and interest before the Chennai Bench of CESTAT arguing that the goods were not written off but merely categorized as “non-moving items,” so CENVAT credit should not be denied.
The appellant’s counsel argued that there was no legal provision to recover CENVAT credit for the disputed period ( FY 2010-11 and 2011-12 ) since the power to do so was only introduced with the amendment via Notification 3/2013-CE( NT ) dated 01/03/2013. The appellant’s counsel relied on a similar ruling in M/s. Hindustan Zinc Ltd. to support his case.
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A single bench led by Ajit Kumar ( Technical Member ) observed that unless goods were fully or partially written off as specified in Rule 3(5B), the reversal of credit was not required. The tribunal noted that before the amendment on 01/03/2013, there was no legal provision for recovering CENVAT credit under Rule 3(5B) for the disputed period.
The tribunal referred to Ericsson India Pvt Ltd., confirming that recovery provisions under Rule 3(5B) did not exist before March 2013. The tribunal agreed with the appellant’s arguments. Therefore, the tribunal set aside the impugned order for the recovery of CENVAT credit and interest.
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