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2006 (11) TMI 493 - AT - Central ExciseCenvat/Modvat - Capital goods purchased - contravened Rule 4(4) of Cenvat Credit Rules - HELD THAT - In the present cases, the appellants had taken only 50% of the duty paid on Capital Goods in the first year. On this point, there is no dispute. That means, in respect of the balance 50% of the duty on capital goods, as per rule, the appellant had not taken Cenvat credit in the first financial year. There is nothing in the rules, which debars the appellant from availing depreciation on the balance 50% of the duty, which is not availed as Cenvat credit. As regards the second year, as per Rule 4(2)(b), the appellants availed the Cenvat credit. Cenvat Rule 4(4) makes it clear that Cenvat credit 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 u/s 32 of the Income Tax Act. Even though it appears that in the first year, the appellants had violated the rule, actually they have not violated the rules for the simple reason that they had availed depreciation only in respect of that portion of duty on which they had not taken Cenvat credit. Thus, we are of the view that there is no violation of the provisions of Cenvat Credit Rules. Hence, the impugned orders are not sustainable. We allow the appeals with consequential relief, after setting aside the impugned Orders-in-Appeal.
Issues:
Interpretation of Rule 4(4) of Cenvat Credit Rules regarding claiming Cenvat credit and depreciation simultaneously. Applicability of limitation period in the demand for duty. Validity of interest and penalty when the amounts were reversed under protest. Interpretation of Rule 4(4) of Cenvat Credit Rules: The case involved a dispute over the interpretation of Rule 4(4) of the Cenvat Credit Rules, which states that Cenvat credit of capital goods shall not be allowed if the manufacturer claims depreciation under Section 32 of the Income Tax Act on the same amount. The appellants had availed 50% of Cenvat credit in the first year and claimed depreciation on the remaining 50%. The Revenue alleged a contravention of the rule, leading to demands and penalties. The appellants argued that since they availed Cenvat credit on 50% and depreciation on the balance 50%, there was no double benefit obtained. They contended that the law prohibits simultaneous claiming of Cenvat credit and depreciation. The Tribunal analyzed the rules and concluded that the appellants had not violated the provisions as they claimed depreciation only on the portion for which they did not avail Cenvat credit. Therefore, the impugned orders were set aside, and the appeals were allowed. Applicability of Limitation Period: The appellants argued that the demand was barred by limitation as there was no intention to evade duty, and they held a bona fide view. They relied on various case laws to support their contention. The Tribunal considered the argument but did not delve deeply into this issue in the judgment, as the main focus was on the interpretation of the Cenvat Credit Rules. However, the argument regarding the limitation period was acknowledged as part of the overall defense presented by the appellants. Validity of Interest and Penalty: The appellants reversed the amounts under protest before the issuance of the Show Cause Notice. They contended that interest and penalty were not demandable in such circumstances, citing a precedent affirmed by the Supreme Court. The Tribunal acknowledged this argument, emphasizing that interest and penalty were not applicable due to the reversal of amounts under protest. This aspect of the case was crucial in determining the relief granted to the appellants, as the Tribunal set aside the demands for interest and penalties based on the specific circumstances of the case. In conclusion, the judgment by the Appellate Tribunal CESTAT, Bangalore addressed the issues related to the interpretation of Cenvat Credit Rules, the applicability of the limitation period, and the validity of interest and penalty demands. The Tribunal primarily focused on the interpretation of Rule 4(4) regarding claiming Cenvat credit and depreciation simultaneously, ultimately ruling in favor of the appellants. The arguments regarding the limitation period and the validity of interest and penalty demands were also considered, with the Tribunal providing relief based on the specific circumstances of the case.
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