Method of allowing depreciation for Credit reversal on used capital goods when no method prescribed

PJ/CASE LAW/2015-16/2665

Case:- SIDDHARTH POLYSACKS PVT. LTD. Versus COMMISSIONER OF C.EX. & S.T.,JAIPUR-I

Citation:- 2014(303)E.L.T.575(TRI.-DEL.)

Brief facts:- The appellant are manufacturers of HDPL Bags, chargeable to Central Excise duty. The appellant during May & June, 1999 had purchased some capital goods and installed the same in the factory and took capital goods Cenvat Credit of about Rs. 10 Lakhs. The capital goods after being used were disposed of during period from April, 2009 to Jan. 2010. At the time of removal of used capital goods, the appellant were required to pay an amount as per the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004. During the period of disposal of the used capital goods, proviso to Rule 3(5) provided that if the Cenvat credit availed capital goods, are removed after being used, the manufacturer shall pay an amount equal to Cenvat credit originally taken on the said capital goods reduced by 2.5% for each quarter of a year or part thereof, from the date of taking the Cenvat credit. With effect from 27-2-2010 the proviso to Rule 3(5) of the Cenvat Credit Rules was amended. In the amended Rule 3(5), while for the used capital goods, other than Computers & Computer peripherals, the depreciation at the rate of 2.5% per quarter or part thereof was maintained, the rule, however, prescribed that the Cenvat credit originally taken should be reduced by 2.5% for each quarter or part thereof by straight line method. The Department’s contention is that since during the period prior to 27-2-2010, the method of reduction of the Cenvat credit so as to arrive at the amount payable was not prescribed and only w.e.f. 27-2-2010 that the rule specifically provided that the calculation should be by straight line method, during the period prior to 27-2-2010, the calculation of the depreciation must be by “written down method”. If the amount to be paid is calculated by reducing the Cenvat credit originally taken @ 2.5% per quarter by written down method, the quantum of reduction would be lower and the amount payable would be higher. On this basis, the Department issued a Show Cause Notice dated 10-12-2012 for recovery of Cenvat credit of Rs. 3,13,336/- along with interest and imposition of penalty. The Show Cause Notice was adjudicated by Assistant Commissioner vide Order-in-Original dated 19-9-11 by which the above demand was confirmed along with interest and penalty of equal amount was imposed. This order of the Assistant Commissioner was upheld by Commissioner (Appeals) vide Order-in-Appeal dated 2-1-2012 against which this appeal has been filed along with stay application.

Appellant’s contention:- Sh. Alok Kothari, learned counsel for the appellant, pleaded that the calculation of the amount payable at the time of removal of used Cenvat credit availed capital goods by straight line method was prescribed only by the amendment to Rule 3(5) w.e.f. 27-2-2010, that prior to 27-2-2010, the method of calculating depreciation was not prescribed, that from this, it cannot be presumed that during the period prior to 27-2-2010, the depreciation @ 2.5% per quarter should be calculated by written down method, and that the appellant have strong prima facie case in their favour and therefore the requirement of pre-deposit of Cenvat credit demand, interest thereon and penalty may be waived for hearing of the appeal and recovery thereof may be stayed.

Respondent’s contention:- Sh. A.K. Jain, ld. Jt. CDR, opposed the stay application by reiterating the findings of the Commissioner (Appeals) in the impugned order and pleaded that only with effect from 27-2-2010, the Rule specifically provided that depreciation is to be calculated at the prescribed rate by straight line method, that in view of this, during the period prior to 27-2-2010, straight line method cannot be adopted, as amending Notification No. 6/2010-C.E. (N.T.), dated 27-2-2010 cannot be given retrospective validity and therefore during period prior to 27-2-2010, depreciation must be calculated by written down method. He, therefore, pleaded that this is not a case for total waiver from requirement of pre-deposit.

Reasoning of Judgement:-Submissions from both the sides are considered and perused the records. There is no dispute that during the period of dispute i.e. prior to 27-2-2010 and during the period with effect from 27-2-2010, the rate of depreciation by which the Cenvat credit originally taken was to be reduced was 2.5% each quarter or part thereof. But during the period prior to 27-2-2010, method of calculation of depreciation, whether by straight line method or by written down method, was not prescribed and the straight line method was prescribed only by amending Notification No. 6/2010-CE (N.T.), dated 27-2-2010. The point of dispute is as to whether during prior to 27-2-2010, for calculating the depreciation @ 2.5% for each quarter of a year or part thereof, only written down method could be adopted. In Tribunal’s view the provisions of proviso to Rule 3(5) during the period prior to 27-2-2010 cannot be interpreted on the basis of the wordings of the proviso as the same stood w.e.f. 27-2-2010. During period prior to 27-2-2010, since no method for calculating depreciation @ 2.5% per quarter on part thereof was prescribed, the same could be calculated by adopting any method. But since it is well settled law that when two interpretation of a statutory provision are equally possible, it is the interpretation which is beneficial to the Assessee which should be adopted, The requirement of pre-deposit of Cenvat Credit demand, interest and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed.

Decision:- The stay application is allowed.

Comment:- The crux of the case is that prior to 27.02.2010, as no method for calculating depreciation under Rule 3(5) was mentioned, any method can be adopted to calculate depreciation i.e., straight line or written down value method. This decision was made on the premise that when two interpretation of statutory provision is possible, the interpretation which is beneficial to the assessee shall be adopted.

Submitted by:- Somya Jain

Comments

PJ/CASE LAW/2015-16/2665

Post a Comment

Query