Whether the assessee is required to reverse the credit availed on inputs which are written off in the books of account in accordance with Rule 3(5B) of Cenvat Credit Rules, 2004?

PJ/Case Law/2018-2019/3476

Case:SOLVAY SPECIALITIES INDIA PVT. LTD. Versus COMMR. OF C. EX. & S.T., SURAT-II
Citation:2018 (12) G.S.T.L. 82 (Tri. - Ahmd.)
Issue: : Whether the assessee is required to reverse the credit availed on inputs which are written off in the books of account in accordance with Rule 3(5B) of Cenvat Credit Rules, 2004?
Brief facts:The appellant was issued a demand notice on 13-3-2013 for recovery of the credit amounting to Rs. 46,22,2178/- availed during the periods 2008-2009 to 2011-2012. It was alleged that even though the inputs on which credit was availed and the value thereof written down in their books of account but the credit was not reversed as per Rule 3(5B) of Cenvat Credit Rules, 2004. On adjudication the demand was confirmed with interest and penalty. Aggrieved by the said order, they filed appeal before the Ld. Commissioner (Appeals) who in turn, rejected their appeal.
Appellant’s contention: The appellant contended that he had only written down the value of the inputs/raw materials in their books of account, which has been misunderstood by the department that they have ‘written of’ the value of the input raw materials from their books of account and accordingly demand notice was issued for recovery of the credit with interest. He submits that the inputs are still lying in the factory premises and are in usable condition and recording depreciation in the value of inputs for accounting purposes has nothing to do with the admissibility of credit on the duty paid. Therefore, demand of Cenvat credit availed on inputs is unsustainable in law. In support he has referred to the judgment of this Tribunal in the cases of B.H.P.V. Ltd. v.CCE, Visakhapatnam - 2009 (240) E.L.T. 49(Tri.-Bang.) and Ray Ban Sun Optics India Ltd. v. CCE, Jaipur - 2012 (283) E.L.T. 276(Tri.-Del.). Further, explaining the meaning of written down value in the context of Income-tax Act, 1961, he referred to the judgment of Hon’ble Supreme Court in the case of Madeva Upendra Sinai & Ors. v. UOI - 1975 (3) SCC 765 and the relevant provisions of the said Act, to advance his point of argument that “written down value” and “written off” are two different concepts and cannot be applied interchangeably.
Respondent’s Contention and Reasoning of Judgment:Rule 3(5B) of the Cenvat Credit Rules, 2004 as was in force during the relevant time, which reads as follows :
“Rule 3(5B) : If the value of any input or capital goods before being put to use on which CENVAT credit has been taken is written off fully or partially or where any provision to write of fully or partially has been made in the books of account, the manufacturer or service provider is required to pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods.”
On a plain reading of the said Rule, it is clear that the value of any input or capital goods before being put to use on which Cenvat credit has been availed are written off fully or partially or any provision has been made to write off fully or partially, then the manufacturer or service provider are required to reverse/pay Cenvat credit availed on such inputs or capital goods. In the present case from the very beginning, the appellant have submitted that they have only written down the value of the raw materials in their books of account and has not written off the value fully or partially. Also, the claim of the appellant are that all these raw materials are still available in their factory and are in usable conditions; the value is written down as per the accounting principle and since the credit availed is on inputs, therefore, under the CCR, 2004, there is no bar in taking depreciation benefit’ under Income-tax Act, 1961. Further, there is no evidence to the effect that the inputs whose value had been written down had been removed from the factory. Thus, reducing the value of the raw materials keeping in view the accounting principles and Income-tax benefit, if any, it cannot be construed that the value of the inputs are written off from the books of account and are not usable resulting into invoking of Rule 3(5B) of Cenvat Credit Rules, 2004. Consequently, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.
Decision: The appeal was allowed in favor of the appellant.
Comment: The kernel of the case is that the applicant was issued a demand notice alleging that credit has been availed on goods whose value has been written down in the books but the credit has not been reversed as per Rule 3(5B) of Cenvat Credit Rules, 2004. The applicant submitted these goods were still available in the factory and were in usable condition . The value of such goods has been written down as per accounting principle and income tax benefit. Further, the appellant submitted that the value of such goods had not been fully written off from the books of accounts. Thus, on the basis of the above this case was allowed in favour of the applicant and subsequently he was not required to reverse the Input Tax Credit availed on such goods as per Rule 3(5B) of Cenvat Credit Rules, 2004.
Prepared by: Prateeksha Jain

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PJ/Case Law/2018-2019/3476

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