In a major relief to Steel Authority of India (SAIL), the Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that writing down the inputs for Income-tax purposes cannot be equated with writing-off the inputs under Rule 3 (5B) of CCR (Cenvat Credit Rules, 2004).
The bench of Rachna Gupta (Judicial Member) has observed that there is no denial by the Department about appellant to have kept the inventory in their accounts at full value and upon consumption in regular course of business, the cost of inventory is booked at full value itself. There is also no denial to the fact that the non/slow moving inventory has at a certain stage being used by the appellant in its manufacturing process. Hence the inventory which had not become obsolete cannot be called as the entry written off. As already observed above Rule 3(5B) CCR is invokable in relation to written off entry only.
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Background
The appellant/assessee is in the business of manufacturing of Billets, Slabs, angles, TMT Bar, Channels etc. They were also availing the facility of Cenvat Credit on inputs, capital goods and input services as provided under Cenvat Credit Rules, 2004.
While auditing the records of the appellant, it was pointed out by the auditors that the appellant has made the provision against the stock value in the Financial Year 2016 & 17, for non-moving/ obsolete /surplus inventories on which the Cenvat Credit was not reversed by the appellant as is required under rule 3 (5B) of CCR 2004.
Though the appellant contended that the said rule does not apply but no documentary evidence could be produced by the appellant. Resultantly, vide SCN No. 16827 dated 16.12.2020 Cenvat Credit amounting to Rs.3,30,81,463/- was proposed to be reversed alongwith the interest and the penalty of the same amount.
While adjudicating the proposal, the original adjudicating authority has ordered the partial recovery by dropping the balance demand alongwith the interest. Penalty of the same amount has been imposed upon the appellant.
Arguments
The assessee contended that the appellant procures various raw-material; store and spare the same to undertake its manufacturing activity. In accordance with the generally accepted accounting principle, the appellant maintains an “Accounting Manual‟ which records the accounting practices followed by it for maintaining the books of account, wherein the provision has been made in respect of slow moving/ non-moving inventory.
The assessee contended that the entry in the books of accounts does not change the value of inventory in any manner. The entry is otherwise been made as per the Internal Accounting Manual. The values of these entries are being reviewed on regular basis and the provisions are renewed on yearly basis in accordance with the utilization of the inventories. Department has therefore, taken a wrong presumption that these entries amounts to writing off the inventory. SCN based on such assumption and the order passed in furtherance thereof, both are liable to be set aside.
The assessee contended that appellant was not required to reverse the Cenvat Credit as the value of inventory was never written off. The Department has wrongly invoked rule 3 (5B) of CCR 2004.
The department contended that the appellant in their balance sheet have declared the value for an amount of Rs.2814.81 Lakhs and they made the provision for Rs.2007.37 Lakhs for non-moving /obsolete/ surplus inventory and also created a provision of Rs.2007.37 Lakhs for the same. However they had not paid any amount for reversal of Cenvat Credit taken towards such credit.
The department urged that Rule 3 (5 B) of CCR 2004 has rightly been invoked. The Cenvat Credit is required to be written-off when the inventory is declared as obsolete. By not reversing the said Cenvat Credit and not revealing it to the Department about the provisions of writing off their inventory, the appellants have rightly been held responsible for suppressing the relevant facts.
Issue Raised
The issue raised was Whether the appellants are required to reverse the credit availed on the inputs alleged to have been written off in their books of account in accordance of rule 3 (5B) of CCR.
Relevant Provisions – Rule 3 (5B) of CCR
Rule 3(5B) of CCR states that 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.
Conclusion
The tribunal while ruling in favour of SAIL held that provisions of rule 3 (5B) CCR are applicable only when the value of asset and or inventory is written off fully or partially, or wherein any specific provision to write-off fully or partially has been made in the books of accounts.
The tribunal while allowing the appeal held that the concept of provision for doubtful debts is different from the concept of write off. The provision for “doubtful debts‟ cannot be equated to “write off‟.
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Case Details
Case Title: M/s. Steel Authority of India Limited v/s Commissioner of Central GST & Central Excise (Audit)
Case No.: EXCISE APPEAL No. 54821 OF 2023
Date: 24/10/2024
Counsel For Appellant: Dhruv Tiwari
Counsel For Respondent: Kuldeep Rawat
