2015 (3) TMI 911 - AT - Central Excise

Modvat / Cenvat credit - Capital goods - Respondents have also claimed depreciation under Section 32 of Income Tax Act - Lower appellate authority has not only set aside the interest and 11AC penalty but also set aside adjudication order allowing credit from 30.5.2004 and held that respondents are entitled to the modvat credit from the date of taking credit w.e.f 30.6.99 - Held that - no credit shall be allowed, if the manufacturer claims depreciation under Section 32 of the IT Act. Rule 57T stipulates procedure to be followed by the manufacturer who is intending to take credit of the duty paid on the capital goods under rule 57Q. Under this Rule an assessee shall file declarations before receipt of the capital goods before the Assistant Commissioner of Central Excise having jurisdiction over his factory. One of the declarations under Rule 57T stipulates that they shall not claim depreciation under Section 32 of the Income Tax Act. No doubt that the respondents succeeded in their appeal before CIT (A), but the fact remains established from the above that respondents suppressed the facts before the department on availing simultaneous benefit. The respondent's plea of communication lapse is beyond acceptable. - The deliberate misdeclaration and willful suppression of facts by the respondents was established by the adjudicating authority. The undisputed fact that, but for the Departmental officers detecting the case on 5.3.2002 it would not have come to notice and this fact was completely ignored by the LAA. Therefore, I hold that there is merit, in the revenue appeal and the impugned order waiving interest and penalty under Section 11AC and restoring the Modvat credit to the respondent w.e.f. 30.6.99 is liable to be set aside and the adjudication order dt. 28.9.2004 demanding the credit, confirming interest and imposing penalty under Section 11AC is liable to be restored. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Eligibility for Modvat credit on capital goods when depreciation is claimed under Section 32 of the Income Tax Act.
2. Legality of the Commissioner (Appeals) setting aside interest and penalties.
3. Suppression of facts and misdeclaration by the respondent.
4. Impact of subsequent judicial decisions on the initial appellate order.

Issue-wise Detailed Analysis:

1. Eligibility for Modvat Credit on Capital Goods:
The respondent, a manufacturer of motor vehicle parts, availed Modvat credit on capital goods while also claiming depreciation under Section 32 of the Income Tax Act, which is prohibited under Rule 57R(8) of the Central Excise Rules, 1944. The adjudicating authority initially ordered the recovery of the Modvat credit and imposed penalties. The Commissioner (Appeals) later set aside this order, restoring the credit from the date of availing it. However, the Tribunal found that the respondent's actions constituted a clear violation of Rule 57R(8), as they had claimed both benefits simultaneously, which was only rectified after departmental investigation.

2. Legality of Setting Aside Interest and Penalties:
The Commissioner (Appeals) set aside the adjudicating authority's order, including the interest and penalties, based on the respondent's successful appeal before the Commissioner of Income Tax (Appeals). The Tribunal, however, determined that this decision was flawed due to subsequent judicial findings. The Tribunal reinstated the original order, emphasizing that the respondent's actions involved willful suppression of facts and misdeclaration, justifying the imposition of interest and penalties under Section 11AC of the Central Excise Act.

3. Suppression of Facts and Misdeclaration:
The Tribunal found that the respondent had filed declarations under Rule 57T, stating they would not claim depreciation under Section 32 of the Income Tax Act, but had done so in their tax returns. This misdeclaration was only corrected after the department's investigation. The Tribunal highlighted that the respondent's plea of a communication gap between their manufacturing unit and head office was not credible. The deliberate misdeclaration and willful suppression of facts warranted the penalties imposed by the adjudicating authority.

4. Impact of Subsequent Judicial Decisions:
The Tribunal considered the subsequent judicial decisions, including the Income Tax Appellate Tribunal's (ITAT) order, the Delhi High Court's dismissal of the respondent's appeal, and the Supreme Court's dismissal of the Special Leave Petition (SLP). These decisions confirmed that the respondent's claim for depreciation under Section 32 of the Income Tax Act was invalid, thereby invalidating their eligibility for Modvat credit on the capital goods. The Tribunal emphasized that these judicial findings were crucial in determining the finality of the case and upheld the original adjudication order, including the recovery of Modvat credit, interest, and penalties.

Conclusion:
The Tribunal set aside the Commissioner (Appeals)'s order and restored the original adjudication order, confirming that the respondent was not entitled to the Modvat credit on the capital goods and was liable for recovery of Rs. 24,79,790/- along with interest and penalties. The appeal filed by Revenue was allowed, and the cross-objection by the respondent was disposed of accordingly.