2013 (12) TMI 760 - AT - Central Excise

Disallowance of MODVAT availed on Input and Capital goods - Depreciation u/s 32 of the Income Tax, 1962 claimed Held that - There is a difference of the amounts in the ledger entry - It was clarified by the appellant in the Memorandum of Appeal that they have capitalized all such expenses which are directly attributable to bring the assets of its working condition by means of debit entries in the ledger accounts - it is not clear as to how the MODVAT amounts should have been deducted during the accounting year 1994-95 could be claimed as not taken into the account for the purpose of depreciation in the Assessment Year 1996-97 - Rule 57T provides that the assessee shall not claim deprecation under Section 32 of the Income Tax, 1961 - the Income Tax authority had certified that the appellant had not claimed depreciation which would prevail against any other document, unless its genuinity is doubted. Following Honda Siel Cars (I) Ltd. Vs. CCE 2003 (9) TMI 596 - CESTAT, NEW DELHI - Rule 57R(8) was amended retrospectively by the Finance Act, 2003 and the provisions of the rule, on the basis of which credit was denied, were deleted - in view of the amendment made in Rule 57R(8) of Rules - demand of duty along with penalty is not sustainable Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of MODVAT credit on capital goods.
2. Interpretation of Rule 57T of the erstwhile Central Excise Rules.
3. Certification by the Assistant Commissioner of Income Tax.
4. Discrepancies in ledger entries and accounting treatment.
5. Claiming MODVAT credit as revenue expenditure.
6. Application of Rule 57R and its retrospective amendment.

Issue 1: Disallowance of MODVAT credit on capital goods:
The case involved the disallowance of MODVAT credit on capital goods by central excise officers for the years 1994-95, 1995-96, and 1996-97. This disallowance led to a demand for duty and imposition of penalties. The Commissioner (Appeals) modified the penalty amount. The appellant argued that they had not claimed depreciation under Section 32 of the Income Tax Act, 1962, supported by certificates from the Assistant Commissioner of Income Tax. The Income Tax authority certified that the appellant had not claimed depreciation, but the excise authority discarded this certificate based on ledger entries. The Tribunal found that the demand based on disallowance of MODVAT credit was not justified due to the Income Tax authority's certification.

Issue 2: Interpretation of Rule 57T of the erstwhile Central Excise Rules:
The appellant contended that Rule 57T prohibits claiming depreciation under Section 32 of the Income Tax Act. The Income Tax authority's certification that depreciation was not claimed should prevail unless its genuinity is doubted. The Tribunal upheld the appellant's argument, emphasizing the importance of the Income Tax authority's certification in determining the admissibility of MODVAT credit.

Issue 3: Certification by the Assistant Commissioner of Income Tax:
The Assistant Commissioner of Income Tax issued certificates confirming that the appellant had not claimed depreciation on certain machineries after deducting MODVAT credit. These certificates played a crucial role in the case as they supported the appellant's position regarding the disallowance of MODVAT credit. The Tribunal considered these certificates as significant evidence in favor of the appellant.

Issue 4: Discrepancies in ledger entries and accounting treatment:
There were discrepancies in the ledger entries regarding the treatment of expenses directly attributable to bringing assets into working condition. The appellant clarified that they capitalized such expenses through debit entries in the ledger accounts. The Commissioner (Appeals) raised concerns about the accounting treatment but did not provide sufficient justification for disregarding the Income Tax authority's certification.

Issue 5: Claiming MODVAT credit as revenue expenditure:
The appellant argued that they did not claim MODVAT credit as revenue expenditure, citing a Tribunal decision in a similar case. The Tribunal noted the retrospective amendment of Rule 57R by the Finance Act, 2003, which deleted provisions disallowing credit based on booking MODVAT credit as revenue expenditure for income tax purposes. Consequently, the demand based on this issue was deemed unsustainable.

Issue 6: Application of Rule 57R and its retrospective amendment:
The case involved the application of Rule 57R and its retrospective amendment by the Finance Act, 2003. The Tribunal acknowledged the deletion of provisions that disallowed credit for booking MODVAT credit as revenue expenditure. As the rule was amended retrospectively, the demand related to this issue was set aside, and the appeal was allowed with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the demand for duty and penalties. The judgment highlighted the importance of certifications from the Income Tax authority, the interpretation of relevant rules, and the impact of retrospective amendments on the admissibility of MODVAT credit in the case.