CESTAT Chennai Dismisses GE T&D Ltd.'s Appeal: CENVAT Credit Reversal Obligation Under Rule 3(5B) and Extended Limitation Period Upheld

Background and Context

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, in Excise Appeal No. 41950 of 2017, delivered its order on 16.09.2026 in the matter of GE T&D Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai), dismissing the appeal filed by the assessee. The case revolved around the obligation to reverse CENVAT credit under Rule 3(5B) of the CENVAT Credit Rules, 2004, in relation to accounting provisions created for write-off of raw materials during the financial years 2010–11 and 2011–12, and whether the extended period of limitation was validly invoked.

GE T&D Ltd., formerly known as Alstom T&D India Ltd., is engaged in the manufacture of electrical transformers, relays, switchgears, and control panels. The dispute arose when departmental audit proceedings revealed that the assessee had created accounting provisions for potential write-off of raw materials but had not correspondingly reversed the CENVAT credit attributable to those provisions, as mandated under Rule 3(5B) of the CENVAT Credit Rules, 2004.

Factual Background

During audit, the Revenue authorities detected that the assessee had followed a standard accounting practice of creating provisions at the rates of 30%, 50%, or 90% against slow-moving or excess inventory, determined on the basis of the age of the inventory and its historical consumption patterns. These provisions were made in the books of account in accordance with applicable accounting standards but did not involve physical removal of the goods from the factory premises.

The assessee maintained that whenever provisioned inventory was subsequently consumed in the manufacturing process, the corresponding accounting provision was released in the books. It further contended that after accounting for actually obsolete inventory, it had reversed the appropriate CENVAT credit for both years in question.

However, the Revenue's position was that the assessee had failed to reverse CENVAT credit corresponding to amounts shown as releases of provisions. A Show Cause Notice dated 09.12.2015 was issued, proposing recovery of the balance CENVAT credit, along with applicable interest and penalty. Following adjudication, a demand of ₹8,57,537/- was confirmed under Section 11A(1) and the proviso to Section 11A(4) of the Central Excise Act, 1944, along with interest and penalty under Rule 14 and Rule 15 of the CENVAT Credit Rules, 2004, read with the relevant provisions of the Act. The assessee's appeal before the Commissioner (Appeals) was rejected, leading to the present appeal before CESTAT Chennai.

Statutory Framework: Rule 3(5B) of the CENVAT Credit Rules, 2004

The Tribunal examined the governing statutory provision in detail. Rule 3(5B) of the CENVAT Credit Rules, 2004 reads as follows:

Rule 3(5B) of the CENVAT Credit Rules, 2004:
If the value of any, (i) input, or (ii) 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 off fully or partially has been made in the books of account, then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT Credit taken in respect of the said input or capital goods:

Provided that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of taxable services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT Credit paid earlier subject to the other provisions of these rules.

Arguments Advanced by the Assessee

The assessee, represented by Shri Joseph Prabhakar, advanced the following contentions: