Taking credit and then reversing the same entry is as good as not taking the credit at all

In M/s Hamdard (Wakf) Laboratories v. Commissioner of Customs, Central Excise & Service Tax [Order No. 70247-70248/2021 dated November 5, 2021] Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal ("CESTAT") held that in a case where the assessee is a manufacturer of dutiable goods as well as exempted goods and it is impractical to maintain separate accounts of common inputs used in manufacture of dutiable goods and exempted goods the only practical way of maintaining accounts is by corresponding credit and debit entries, reversing proportionate amount of cenvat credit.

M/s Hamdard (Wakf) Laboratories ("the Appellant") uses furnace oil as an input to generate steam which was captively consumed by the Appellant to manufacture sugar syrup and extracts of herbs and flowers both of which were used in manufacture of the final products. Some of these final products are dutiable goods and some are exempted goods, in such cases Rule 6(2) of Cenvat Credit Rules, 2004 ("the Cenvat Credit Rules") is applicable where the assessee is required to make separate accounts for input used in manufacturing dutiable goods and exempted goods.

The Appellant contended that he is able to keep the track that how much furnace oil is used in each month collectively but keeping track of use of such furnace oil for the manufacturing of both dutiable goods as well as exempted goods separately is impractical.

Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal ("CESTAT") observed that the issue in present case is little complex as the Appellant does not have separate boilers to generate steam and also it does not have separate machinery for generation of sugar syrup which is further used in manufacture of dutiable and exempted products.

Further observed that, in the present case it is impractical for the Appellant to maintain separate accounts for receipt, consumption and inventory of inputs and input services used in manufacture of dutiable final products and exempted products.

Held that, accounts can be maintained in several ways and credit notes and debit notes and credit and debit entries in ledgers are common and acceptable methods of accounting.

Hon'ble CESTAT relied upon the case of Chandrapur Magnet Wires Pvt. Ltd. v. Collector of Central Excise, Nagpur [1996 (81) E.L.T. 3 (S.C.)] and held that the only practical way of maintaining separate accounts for some industries such as the one of the Appellant, is that by making an entry of taking a credit and another entry is made reversing the earlier entry, thus it can be said that it is as good as not taking the credit at all.