Reversal of CENVAT Credit on non-moving inventory under general provision is not valid: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the reversal of CENVAT Credit on the non-moving inventory under general provision is not valid.

M/s Jaisawal Neco Industries Ltd, the Appellant engaged inter alia in the manufacture of pig iron, iron ore pellets, sponge iron, M.S. Billets, Alloy Steel Billets, M.S. Rolled Products, etc. falling under the First Schedule to the Central Excise Tariff Act, 1985, and also availing Cenvat credit on various inputs, capital goods and input services in terms of the provisions of the Cenvat Credit Rules, 2004 (Credit Rules).

The Appellant had made provision in the books of account in respect of slow-moving/ non-moving inventory, as a managerial tool for maintaining the lowest possible inventory stock. The aforesaid entry or provision in the books of account, does not change the value of inventory in any manner. This accounting entry was made as per the established accounting principles.

The said exercise is carried out annually and whenever this exercise is carried out, the provision on spares lying as per the provision made last year (opening balance) is adjusted from the provision to be made in the current year and accordingly, the provision is made for the balance amount.

The appellant contested the SCN in Aliabecause the SCN wrongly assumed that value of inventory has been written down or off from the books of account where there is no removal of any inventory and only the value has been written down in the books of account. The SCN was adjudicated vide order confirming the proposed demand with interest and an equal amount of penalty was imposed.

The CESTAT bench of Mr Anil Choudhary, member (judicial) observed that Rule 3(5B) is not applicable in the facts of the case, where admittedly appellant has only written down the value in the books as regards the inventory, whereas the inventory itself neither been written off partially or fully and the same continues to exist at its original value.

It was observed that the appellant has only created a general provision for slow/non-moving inventory and has admittedly not written off the inventory from the inventory or the asset account. Rule 3(5B) of CCR is attracted only when thevalue of the asset and/or inventory is written off fully or partially or wherein any specific provision to write offa fully or partially has been made in the books of account.

While allowing the appeal, the CESTAT set aside the impugned order. Mr Hemant Bajaj & Ms Sukriti Das, Advocates for the Appellant and Ms Tamanna Alam, Authorised Representative for the Respondent.

To Read the full text of the Order CLICK HERE

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