2007 (6) TMI 364 - AT - Central Excise

Cenvat/Modvat - Capital goods - Judicial discipline - Binding precedent - Interpretation of statute

Summary

Issues:
- Denial of Cenvat credit on capital goods
- Interpretation of Rule 4 of the Cenvat Credit Rules, 2001 and 2002
- Applicability of the decision in the case of Suprajit Engineering Ltd.
- Binding nature of judgments by Division Bench

Analysis:

The appeal challenged the denial of Cenvat credit to the appellants on capital goods, based on the order-in-appeal upholding the order-in-original. The appellants purchased capital goods in the financial year 2001-2002, availing 50% Cenvat credit on the duty paid. They claimed depreciation under Section 32 of the Income Tax Act on the remaining 50% of the duty. Subsequently, in the financial year 2002-2003, they availed the balance 50% Cenvat credit on the duty paid. The issue centered on whether this action violated Rule 4 of the Cenvat Credit Rules, 2001 and 2002, leading to the issuance of a show cause notice, contestation by the appellants, and confirmation of duty and penalty by the adjudicating authority and appellate order.

The appellant contended that the issue was similar to the decision in the case of Suprajit Engineering Ltd., where the Division Bench ruled in favor of the appellants. However, the Respondent argued that Rule 4 was unambiguous, disallowing Cenvat credit once depreciation was claimed under the Income Tax Act. The Tribunal examined the contentions, noting that the appellants claimed depreciation on the duty not taken as Cenvat credit, seeking to justify their entitlement to the balance Cenvat credit in the subsequent financial year. Rule 4(4) explicitly prohibits Cenvat credit on the part of the duty for which depreciation is claimed, emphasizing clarity in the rules.

The Division Bench's decision in Suprajit Engineering Ltd. was scrutinized, where it was held that the appellants did not violate the rules as they claimed depreciation only on the duty not taken as Cenvat credit. However, the Tribunal found this interpretation erroneous, as Rule 4(4) does not restrict claiming depreciation in subsequent years. The Tribunal emphasized the binding nature of Division Bench judgments, citing the need for judicial discipline to follow such decisions. Nonetheless, it stressed the importance of a literal interpretation of statutes when the law allows only one interpretation, as seen in Rule 4 of the Cenvat Credit Rules.

In light of the inconsistencies between the Division Bench's ruling and Rule 4(4), the Tribunal decided to refer the matter to a Division Bench for reconsideration. It highlighted the need for a clear understanding and application of statutory provisions, urging a strict adherence to the law. The Tribunal directed the Registry to present the case before the Honorable President to constitute a Division Bench for a thorough review of the judgment in Suprajit Engineering Ltd., emphasizing the necessity for a correct interpretation of the law.

Overall, the judgment delved into the intricate details of Cenvat credit rules, the impact of claiming depreciation, and the significance of following binding precedents while ensuring a precise application of legal provisions.