M/S. Gkn Driveline Ltd vs C.C.E., Faridabad

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether Lordships wish to see the fair copy of the order? Seen 4. Whether order is to be circulated to the Department Authorities? Yes

Appeal No.E/2466/2009-EX[SM]

[Arising out of Order-in-Appeal No.67/CE/APPL/DLH-IV/2009 dated 27.05.2009 passed by the C.C.E.(Appeals), Faridabad]

M/s. GKN Driveline Ltd. Appellant

Vs.

C.C.E., Faridabad Respondent

Appearance

Ms. Sukriti Das, Advocate - For Appellant

Mr. R.K. Mishra, DR - For Respondent

CORAM: Honble Mr. S.K. Mohanty, Member (Judicial)

Final Order Nos.54156/2015, dated 06.08.2015

Per Mr. S.K. Mohanty :

This appeal is directed against the impugned order dated 27.05.2009 passed by the ld. Commissioner (Appeals) confirming duty demand of Rs.25,43,035/- under Section 11A of the Central Excise Act, 1944 and imposing equal amount of penalty under Section 11AC ibid. The issue involved in the appeal relates to the requirement of reversal of CENVAT credit on the inputs, written off in the books of accounts, though the inputs were physically lying in the factory.

2. Brief facts of the case are that the appellant is engaged in the manufacture of motor vehicle parts falling under Chapter 87 of Central Excise Tariff Act, 1985. The appellant avails CENVAT credit of central excise duty, paid on input services and capital goods, used in or in relation to the manufacture of the final products. During the course of audit of annual accounts for the years 2000-01 to 2003-04, it was noticed by the Central Excise Department that the appellant had written off inputs, by charging to profit and loss account on account of obsolescence under the caption provision of slow moving inventories; without paying back the CENVAT credit availed on the inputs. CENVAT demand confirmed in the adjudication order dated 31.12.2007 was upheld by the ld. Commissioner (Appeals) vide the impugned order dated 27.05.2009. The CENVAT credit was denied to the appellant based on CBEC Circular No.101/12/95-CX 8, dated 22.02.1995 and No.645/36/2002-CX, dated 16.07.2002.

3. Ms. Sukriti Das, ld. Advocate appearing for the appellant submitted that during the relevant period, there was no provision in CENVAT credit scheme, requiring the appellant to reverse the credit availed on inputs written off, for slow moving inventories. She further submits that in absence of any specific provisions in the statute, CBEC cannot create an embargo for reversal of CENVAT credit availed on the inputs which are available in the factory and are capable of use in the manufacture of final product. To support her above stand, she relied on the judgement of Hon'ble Gujarat High Court in the case of CCE Vs. Ingersoll Rand (India) Ltd. [2014 (300) ELT 347 (Guj.)] and the judgements of Bombay High Court in the cases of CCE Vs. Indian Petrochemicals Corp. Ltd. [2008 (226) ELT 339 (Bom.)] and CCE, Navi Mumbai Vs. Hindalco Industries Ltd. [2011 (272) ELT 161 (Bom.)].

4. On the other hand, Shri R.K. Mishra, ld. Departmental Representative appearing for Revenue, reiterated the findings recorded in the impugned order and relied on the decision of the Tribunal in the case of RPG Cables Ltd. Vs. CCE, Mumbai [2003 (157) ELT 273 (Tri.-Del.)] and submitted that when the inputs have been written off in the books, CENVAT credits taken on written off inputs, are required to be reversed.

5. Heard both sides and perused the records.

6. The facts in this case are not in dispute that the goods on which the credit was availed by the appellant were inputs within the meaning as defined under Rule 2(k) of CENVAT Credit Rules, 2004; that credit on inputs was availed by the appellant in accordance with the provisions of Rules 3 and 4 of CENVAT Credit Rules, 2004; that the inputs in question are intended to be used in or in relation to manufacture of final products and that there is no removal of inputs outside the factory premises.

7. The credit availed by the appellant was in accordance with the CENVAT statute, and in absence of any specific provision requiring the appellant to reverse the credit availed on the inputs, confirmation of duty demand is against the principles of law. Rule 3(5B) was inserted in the CENVAT Credit Rules, 2004 with effect from 11.05.2007 vide Notification No.26/2007-CE(NT), dated 11.05.2007, requiring payment of amount equal to CENVAT credit taken, in respect of inputs or capital goods, if the same are written off fully or whether any provision to write off fully has been made in the books of accounts. In the present case, the dispute relates to the period 2000-01 to 2003-04 when sub-Rule (5B) was not inserted in Rule 3 of the Cenvat Credit Rules, 2004, requiring reversal of CENVAT credit, attributable to the inputs written off. Since there is no provision existed in the CENVAT Credit Rules for reversal of CENVAT credit at the material time, reversal of credit cannot be insisted, relying upon the circular issued by CBEC. In this context, the Hon'ble Gujarat High Court in the case of CCE Vs. Ingersoll Rand (India) Ltd. (supra) have held that reversal of credit in the absence of any statutory provisions is not proper and justified. The relevant paragraph of in the said judgement is extracted herein below:-

14.?To our mind, such a circular could not provide for the reversal of Modvat credit in cases which are covered prior to introduction of Rule 5B of the Cenvat Credit Rules. As already noted, there was no provision under which the Modvat credit already taken under the Rules of 1944 could be directed to be reversed simply because the input goods were not utilised for a certain period of time. We also note that there is significant difference in the accounting approach for the income-tax purpose and the approach for stock maintenance for the purpose of manufacturing activities relevant for the question of excise. Therefore, merely because the value of goods diminished in the books of account of the assessee would not by itself permit the Department to insist on reversal of the credit particularly when such goods were still available in the factory in usable condition.

8. In view of the above, I do not find any merits in the impugned order, and thus, the same is set aside and the appeal is allowed in favour of the appellant.

[Operated portion pronounced in the open court]

(S.K. Mohanty)

Member (Judicial)

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