Whether Cenvat Credit is allowed on depreciation claimed Capital goods under Income Tax Act?

PJ/Case Laws/2012-13/1289

Case:-MOULD TRADING CO PVT LTD versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR

Citation:-2012-TIOL-1398-CESTAT-DEL

Brief Facts:-The Appellant are engaged in manufacture of confectionary on job work basis for principal manufacturer i.e. M/s Parle Products Pvt. Ltd. They received capital goods from M/s Parle Products Pvt. Ltd. under a rent agreement and took cenvat credit on the same. The Department issued show cause notice on the grounds of wrong availment of Cenvat Credit in contravention of Rule 4(3) of the Cenvat Credit Rules, 2004 and Show cause notice was adjudicated by the Additional Commissioner by which cenvat credit demand was confirmed with interest & penalty. On appeal to the Commissioner (Appeals), the above mentioned order of the Additional commissioner was confirmed and hence this appeal along with stay application has been filed.

Appellant’s Contention:-The Appellant submit that they have referred to copy of the agreement between the appellant and supplier and submitted that, from the agreement, it is apparent that the capital goods in question, were loaned by the principal manufacturer to the appellant on rent and as such, the appellant has rightly availed the cenvat credit in terms of the provision of Rule 4(3) of Cenvat Credit Rules, 2004. As per this provision he relied upon the judgment of Hon'ble Punjab & Haryana High Court in the matter of C.C.E., Ludhiana vs. Bright Brothers Ltd. and also the judgment of the Tribunal in the matter of leamak Healthcare Pvt. Ltd. vs. C.CE. On the above judgments, he submitted that the appellant have a strong prima facie case and for this reason they request that condition of pre-deposit of cenvat credit demand, interest and penalty should be waived.

Respondent’s Contention:-The Respondent has argued that the agreement provided by the appellant is neither a lease agreement nor an agreement between the finance company. Accordingly, Rule 4(3) of Cenvat Credit Rules, 2004 is not applicable. They also contended that the condition of Rule 4(4) of Cenvat Credit Rules is also not satisfied and hence the credit has been rightly denied and they urged for dismissal of the application.

Reasoning of Judgement:-We have considered submissions from both sides and after that we have carefully perused the agreement between the appellant and the principal manufacturer. The Appellant worked as job worker for manufacturer of Confectionary. The Supplier send materials to job worker on payment of excise duty and cenvat credit was taken on the same and the appellant also carried out inspection, packing and delivery of the manufactured confectionary to the various depots located all over the country as per direction by supplier and loss of material was to be borne by appellant depending upon nature. After this, processed material was packed in wrapper/cartoons and was transferred to supplier and supplier paid excise duty on assessable value. The raw material and finished goods remain the property of Parle Products Pvt. Ltd., Mumbai. It is neither lease agreement nor it is an agreement with a financing company. Strangely, in clause (iii) of the agreement, principal manufacturer has agreed that the appellant would avail cenvat credit of central excise duty paid on the raw materials, packing materials as well as capital goods. As per Rule 4(4) of Cenvat Credit it is evident that Cenvat Credit is not admissible to the manufacturer who has claimed depreciation under Section 32 of Income Tax Act, 1961 on full value of capital goods including central excise duty. When asked to M/s Parle Products Pvt. Ltd., whether they have availed depreciation under Section 23 of the Income Tax Act on full value of the capital goods, they answered that they had claimed depreciation under Section 32 of the Income Tax Act, 1961, and hence, the appellant could not have availed Cenvat Credit on capital goods. It may not be out of place to mention that precondition of availability of cenvat credit Rule under 4(3) is that the assessee must have acquired the capital goods on lease or hire purchase or under loan agreement from a finance company and the essential element to acquire the goods under the said agreement is missing in this case. In view of the discussion above, we do not find any infirmity in the impugned order dealing with cenvat credit. Therefore, this is not a fit case for waiver of condition of pre-deposit of duty, interest and penalty. The stay petition is accordingly dismissed. The appellant are directed to deposit the duty along with interest and penalty within six weeks from today.

Decision:-Appeal rejected.

Comments:The Cenvat Credit Rules, 2004, clearly state that Cenvat Credit cannot be availed in respect of Capital Goods when depreciation is claimed under the Income Tax Act on the full value of Capital Goods including the duty. Hence, the case was prima facie against the assessee and so stay was not granted.

Comments

PJ/Case Laws/2012-13/1289

Post a Comment

Query