Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/011

23 September 2009

Case Study

Introduction: -

Under the Income Tax Act, 1961, the assessee can claim depreciation of duty on plant & machinery which includes the capital goods purchased during the year. To avoid double benefit, Rule 4 (4) of the Cenvat Credit Rules, 2002 provides that if depreciation is claimed under Section 32 of the Income Tax Act then Cenvat credit will not be available to the assessee. However, in case an assessee takes benefit of depreciation under the IT Act as well as the benefit of Cenvat credit under the Cenvat Credit Rules, and later on files revised IT return by reducing the amount availed as depreciation, then whether Cenvat credit will be available to him. The Case under study involves such a situation.

Relevant Provisions: -

Rule 4 (4) of the Cenvat Credit Rules, 2002: -

4(4) Credit not available if depreciation claimed on capital goods

The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961).

CCE, Jaipur-II v/s M/s J.M. Metals

Brief Facts of the Case: -

- Assessee herein (M/s J.M. Metals) were engaged in manufacture of SS Patta/Patti and were availing Cenvat credit facility.

- During Audit of assessee’s Central Excise records vis-à-vis their Income Tax returns for the year 2000-2001, it was found that the assessee have added 50% of duty paid on capital goods in the value of plant & machinery and DG set. The assessee had claimed depreciation under Section 32 of the Income Tax Act on the duty part and also availed Cenvat Credit of entire amount of duty paid on machinery and DG Set.

- When this irregularity was pointed out, the assessee filed revised Income Tax Return in the Income Tax Department on 20.08.04 in which they had reduced the amount of depreciation availed by them earlier.

- The Department issued show cause notice for disallowing the credit to the assessee. It was alleged that the assessee had violated the provisions of Rule 4 (4) of the Cenvat Credit Rules, 2002. Penalty under Rule 13 of the said Rules was also proposed to be imposed.

- The Adjudicating Authority disallowed the Cenvat credit on the ground that there was no provision under the rules that the appellants at any point of time can change their stand and adjust depreciation already claimed and subsequently claim modvat credit thereof. Penalty was imposed alongwith interest.

- Assessee filed appeal against the order-in-original before the Commissioner (A). The Commissioner (A) relied upon the judgment of the Tribunal in the case of Terna Shetkari Sahakari Sakhar Karkhana Ltd v/s CCE, Aurangabad [2003 (159) ELT 777 (Tri.-Mumbai)] and held that Cenvat credit availed by the assessee was in order and the order-in-original was set aside.

- The Department filed appeal against the order-in-appeal before the Tribunal.

Question for Consideration: -

The Question for consideration before the Tribunal was as under: -

Whether once the assessee has availed the Cenvat credit on capital goods as well as the depreciation under Income Tax is eligible to rectify this position? Whether the revised Income tax return reversing the excess depreciation will entitle him for taking Cenvat credit?

Revenue’s Contentions: -

Revenue contended that the assessee had availed double benefit in the year 2000-2001. The revised return was filed on 20.08.04 after the irregularity was detected by the Central Excise Officers, he has done so. The assessee had not produced any evidence that the Income Tax Authorities has accepted their revised Return. Therefore, the Adjudicating Authority has rightly disallowed the Credit.

Assessee’s Contentions: -

The Assessee relied upon the following cases to support the order given by the Commissioner (Appeal): -

v Alcobex Metals Ltd v/s CCE, Jaipur-II [2003 (161) ELT 350 (Tribunal-Delhi)].

v CCE, Nagpur v/s Maharashtra Electrosmelt Ltd [2008 (86) RLT 9 (Bombay)] in which the High Court has held that depreciation on capital goods claimed in the Income Tax Return, which was adjusted/reduced in revised return, the assessee cannot be said to have claimed depreciation.

The assessee produced the Chartered Accountant’s certificate. It was further submitted that the Respondent had not utilised the Credit and, therefore, imposition of penalty was not sustainable.

Judgment of the Tribunal: -

The Tribunal heard both the sides and also perused the relevant Rules. The Tribunal held that

Ø In support of the revised return of Income Tax where the amount was reduced, the assessee had produced the certificate of the Chartered Accountant certifying that no double benefit of Modvat credit as well as depreciation was availed and claimed by them.

Ø It was further certified that Income Tax assessment had been completed under Section 143 (3) of the Income Tax Act, 1961 while the Assessing Officers had revised Income Tax Returns filed by the assessee.

Ø Reliance was placed on the judgment of the Tribunal in the case of M/s Abhishek Synthetics Pvt Ltd v/s CCE, Hyderabad [2005 (182) ELT 339] in which it was held that Modvat credit cannot be denied when the assessee filed the revised Income Tax Return.

Ø The Commissioner (Appeals) rightly set aside the denial of credit.

Ø The assessee had availed the double benefit in the year 2000-2001, which was detected by the Central Excise Officers during audit and thereafter, the assessee filed revised Income Tax Return on 28.04.04. Therefore, penalty should be imposed on them.

Ø Accordingly, penalty imposed by the Adjudicating Authority was held to be justified. Appeal was disposed of accordingly.

Conclusion: -

The Tribunal rightly allowed availing of Cenvat credit when the assessee had reduced the amount of depreciation in their revised return. Just as availing depreciation under Section 32 of the IT Act, 1961 and Cenvat credit under CCR, 2002 would have amounted to double benefit, disallowing cenvat credit after reduction of depreciation would have resulted in double loss to the assessee. Thus, the tribunal has rightly allowed the Cenvat credit. But the penalty was imposed on the manufacturer for claiming both the benefits at earlier stage. When the demand was dropped then the penalty can be imposed? The assessee did not contest it further, looking to small amount of penalty imposed.

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PJ/CASE STUDY/2009-10/011
23 September 2009

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