2011 (1) TMI 253 - AT - Central Excise

Demand of duty capital goods on which Cenvat / Modvat credit was availed, was cleared to the sister concern of the respondents - revenue contended that assessee have calculated depreciated value applying depreciation at the rate of 25% as provided under the Income Tax Act and have therefore paid less amount of duty than they would have paid. - as per the department the depreciated value of the goods were required to be done in accordance with Board s Circular No. 643/34/2002-CX dated 1.7.2002 - Held that - depreciation for customs and excise purposes has to be calculated as per straight line method applying a lower prescribed percentage fixed for subsequent years - Departmental appeal allowed by way of remand to the original authority for re-calculation of the differential duty amount applying a straight line depreciation method

Summary

Issues:
Calculation of duty on removed capital goods with availed CENVAT credit, application of depreciation rate, revenue neutrality argument, validity of lower appellate authority's decision, method of calculating depreciation for excise purposes.

Analysis:
The case involves a dispute regarding the duty payment on capital goods removed by the respondents to their sister unit after availing CENVAT credit. The Department argues that the respondents calculated depreciated value using Income Tax Act rates, resulting in underpayment of duty. The Department contends that the depreciation should follow specific circulars issued by the Board, not Income Tax provisions, leading to a duty shortfall of Rs.6,89,987. The respondents, however, support the lower appellate authority's decision based on revenue neutrality, citing precedents from the Hon'ble Gujarat High Court and the Supreme Court.

Upon reviewing the arguments, the judge notes that the cited court decisions are not directly applicable to the current case, which concerns duty on depreciated capital goods. The judge emphasizes the Board's circular providing a uniform depreciation calculation method for all excise assessees. The lower appellate authority's error in allowing Income Tax-based depreciation is highlighted, rejecting the plea of revenue neutrality as the sister concern could only claim 50% credit in the first year, not the full duty amount immediately.

However, the judge observes a flaw in the depreciation calculation method used in the show-cause notice, resulting in a higher duty demand. The judge directs a remand to the original authority for recalculation using a straight-line depreciation method specified in subsequent circulars. The respondents are granted a fair hearing before a fresh order is passed, ensuring compliance with the correct depreciation calculation for excise purposes.