2002 (1) TMI 515 - AT - Central Excise

Summary

Issues:
1. Modvat credit on capital goods denied due to claiming depreciation on the same goods under Income Tax Returns.
2. Acceptance of revised Income Tax return and its impact on Modvat credit eligibility.
3. Lack of communication between factory and head office leading to lapses in compliance with Rule 57R(5).
4. Rejection of plea based on company profitability and limitation of credit reversal.
5. Application of penalty and interest under Rules 57(U)(6) and 57(U)(8).
6. Reference to the decision in Terna Shetkari Sahakari Sakhar Karkhana Ltd. case and remand for reevaluation based on Section 139(5) of the Income Tax Act.
7. Necessity to establish actual availing of 'double benefit' for determination of penalty and interest.

Analysis:
1. The appellant's Modvat credit on capital goods was denied as they had also claimed depreciation on the same goods in their Income Tax Returns, a practice deemed impermissible under Rule 57R(5) provisions. The Commissioner found discrepancies in the Income Tax Returns where depreciation was claimed for goods on which Modvat credit was availed, leading to the denial of Modvat credit.

2. The appellant argued that they had promptly filed a revised Income Tax return, which was accepted by the authorities, wherein they did not claim depreciation on the relevant goods. However, the Commissioner held that filing a revised return did not rectify the initial wrongful credit availed, emphasizing that Rule 57R(5) prohibits taking credit on goods for which depreciation has been claimed under the Income Tax Act.

3. The explanation provided by the appellant regarding lapses in compliance due to communication issues between the factory and head office was dismissed by the Commissioner. He deemed the lack of communication as an unacceptable excuse, emphasizing the clarity of Rule 57R(5) provisions. The failure to rectify the credit error despite detection was viewed as negligence on the part of the appellant.

4. The Commissioner rejected the appellant's plea based on company profitability and attempted to limit the credit reversal amount. He emphasized that profitability was irrelevant under the Central Excise Act and disregarded the plea for a restricted credit reversal, imposing a stringent penalty and interest under relevant rules.

5. Citing a previous Tribunal decision, the appellate tribunal set aside the order and remanded the matter for reconsideration based on Section 139(5) of the Income Tax Act. The necessity to verify the actual availing of double benefits, i.e., Modvat credit and income tax depreciation, was highlighted for determining penalties and interest accurately.

6. The order was overturned, and the appeal was allowed for remand to reassess the situation. The penalty and interest determination were deemed premature until the actual availing of double benefits was established conclusively.