Extended Limitation Upheld for Non-Reversal of CENVAT Credit: CESTAT Chennai

GE T&D Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)

Summary: CESTAT Chennai rejected the appeal of GE T&D Ltd., formerly Alstom T&D India Ltd., concerning reversal of CENVAT credit attributable to provisions created for write-off of raw materials during 2010-11 and 2011-12 under Rule 3(5B) of the CENVAT Credit Rules, 2004. The appellant, a manufacturer of electrical transformers, relays, switchgears and control panels, had created accounting provisions of 30%, 50% or 90% for slow-moving or excess inventory based on its age and consumption pattern. It contended that the goods remained physically available in the factory and that whenever provisioned inventory was subsequently consumed, the corresponding provision was released. According to the appellant, after accounting for actual obsolete inventory, appropriate CENVAT credit had been reversed for 2010-11 and 2011-12.

The Department, however, demanded reversal of ₹8,57,537 under Rule 3(5B) in respect of amounts shown as release of provision. The appellant further argued that Notification No. 3/2011-C.E. (N.T.) dated 01.03.2011 brought partial write-offs and partial provisions within Rule 3(5B) only prospectively and that the show cause notice dated 09.12.2015 was barred by limitation. The Tribunal held that before 01.03.2011 Rule 3(5B) applied to full write-offs or provisions for full write-off and reversal was not legally required for partial write-offs or partial provisions. However, after the amendment inserting the word “partially”, creation of an accounting provision itself triggered the obligation to reverse corresponding CENVAT credit.