2010 (10) TMI 943 - HC - Central Excise

Whether the respondent can reverse the Cenvat credit availed on capital goods treating it as undesirable credit to claim depreciation under Section 32 of the Income Tax Act, 1962, and pay duty from PLA otherwise payable after exhausting Cenvat credit balance thereby claiming refund of the same under Notification No. 39/2001-C.E., dated 31-7-2001? Whether the option to avail Cenvat credit or claim depreciation under Section 32 of Income Tax Act, 1962 is a one time option or the assessee can choose to opt out of option once exercised? Whether in a situation where benefit of an exemption notification is being availed in which mandatory condition to avail the substantive benefit is the utilization of the Cenvat credit, can assessee at his will opt out midway to avail the benefit under Income Tax Act, 1962, thus rendering mandatory condition of exemption notification inapplicable? Whether Tribunal erred in not following its own decision, in the case of M/s. Pranam Industries Ltd. in Appeal No. E/3758/2005? Held that - Reversal of credit before utilization amounts to not taking credit and as such it cannot be said that the assessee had violated the provisions of the subject notification. In the circumstances, the Tribunal was justified in holding that when the clearances started from the assessee s unit there was no Cenvat credit available in its account and that there was nothing wrong in taking a decision to claim depreciation instead of Cenvat credit and reversing the same before it started clearance of goods from its factory, and as such the refund had rightly been sanctioned. For the foregoing reasons, there being no infirmity in the impugned order of the Tribunal, the same does not give rise to any question of law, as proposed or otherwise, much less, a substantial question of law, so as to warrant interference. The appeal is, accordingly, dismissed.

Summary

Issues:
1. Reversal of Cenvat credit on capital goods for claiming depreciation under Income Tax Act and refund under Notification No. 39/2001-C.E.
2. One-time option to avail Cenvat credit or claim depreciation under Income Tax Act.
3. Opting out of exemption notification condition midway to claim benefit under Income Tax Act.
4. Alleged error by Tribunal in not following its own decision in a previous case.

Analysis:
1. The appellant revenue challenged the Tribunal's order regarding the reversal of Cenvat credit on capital goods by the respondent. The appellant contended that the respondent violated the subject notification by not utilizing the Cenvat credit balance before paying duty from PLA and claiming excess refund. The appellant argued that once the credit was taken, it had to be utilized for duty payment. The appellant alleged that the respondent's intention behind reversing the credit was to pay duty from PLA and claim refund under the notification, using the depreciation claim as a cover.

2. The respondent, a new industrial unit, started operations after July 31, 2001, availing benefits under Notification No. 39/2001-C.E. The respondent began commercial production in January 2005 and reversed the Cenvat credit on capital goods to claim depreciation under the Income Tax Act. The revenue contended that the credit reversal was impermissible and should have been used for duty payment. The respondent argued that it reversed the credit before utilizing it to avail depreciation on the total value of capital goods, including the excise duty component.

3. The Tribunal found that the respondent had reversed the Cenvat credit before commencing clearances, opting to claim depreciation under the Income Tax Act. The Tribunal noted that no Cenvat credit was available when the clearances began, as the credit reversal was done beforehand. The central issue was whether the respondent could reverse the Cenvat credit without utilizing it as per the subject notification.

4. Referring to a Supreme Court decision, the Court held that reversing credit before utilization equated to not taking credit, thus satisfying the conditions of the notification. The Court concluded that the respondent's reversal of credit before utilization did not violate the notification. Therefore, the Tribunal's decision to sanction the refund was upheld, dismissing the appeal.

In conclusion, the Court dismissed the appeal, finding no legal infirmity in the Tribunal's order. The respondent's reversal of Cenvat credit before utilization to claim depreciation under the Income Tax Act was deemed permissible under the circumstances, as it did not breach the provisions of the subject notification.