2015 (12) TMI 1447 - HC - Central Excise

MODVAT Credit - Whether the assessee can be granted modvat credit without fulfilling the conditions of Rule 57R of the erstwhile Central Excise Rules 1944 viz. production of a certificate from M/s KSFC to the effect that the assessee have paid the amount of CVD to them and that M/s KSFC have not claimed depreciation amount under the Income Tax Act - Held that - Due to some disputes between the KSFC and the respondent, the respondent was not in a position to make available of the required documents to be placed before the authorities as per Rule 57(6) of the Rules, which would not be fatal to the case. The non-compliance of the said Rule would not disentitle the respondent from availing the Modvat credit having deposited the countervailing duty as prescribed under the Rules. The Tribunal having accepted this contention and following the law laid down by the Apex Court in the case of Commissioner of Customs (imports) -vs- Tullow India Operations Ltd. 2005 (10) TMI 502 - SUPREME COURT OF INDIA has given a finding that the denial of Modvat credit to the appellant on the ground that KSFC has not furnished the required certificate would result in gross miscarriage of justice - cost of the capital goods shall be reduced by the amount of duty to excise in respect of which a claim of credit has been made and allowed under the Rules, KSFC cannot claim depreciation on the portion of the capital goods representing countervailing duty taken as Modvat credit. - order passed by the Tribunal is just and proper and does not call for any interference by this Court - Decided in favour of assessee.

Summary

Issues:
Whether the assessee can be granted modvat credit without fulfilling the conditions of Rule 57R of the erstwhile Central Excise Rules 1944.

Analysis:
The appeal challenges an order by CESTAT regarding the denial of Modvat credit to the appellant for not furnishing the necessary certificate from Karnataka State Financial Corporation (KSFC) as required by Rule 57R of the Central Excise Rules, 1944. The respondent availed Modvat credit on a capital goods purchase from KSFC, but faced denial and penalty for not providing the certificate. The Original Authority and Appellate Authority upheld the denial. The appellant argues that non-compliance with Rule 57R(3) should disqualify the respondent from claiming Modvat credit. However, the Tribunal, citing a Supreme Court judgment, ruled that denial based on missing certificate would lead to a miscarriage of justice. The Tribunal considered the legal position under the Income Tax Act, 1961, and concluded that KSFC cannot claim depreciation on the part of capital goods representing countervailing duty claimed as Modvat credit.

The Court examined Rule 57R(3) which mandates producing a certificate from the financing company to claim Modvat credit on capital goods acquired through a financial arrangement. While acknowledging the requirement to repay the countervailing duty before the first loan installment, the Court focused on the issue of not presenting the certificate from KSFC. Despite acknowledging the non-compliance, the Court agreed with the Tribunal's decision, emphasizing that the denial of Modvat credit solely on the absence of the certificate would be unjust. The Court referenced a Supreme Court judgment to support its stance that conditions beyond the importer's control should not permanently disqualify them from benefits. Additionally, the Court considered the retrospective application of Explanation 9 to Section 43 of the Income Tax Act, 1961, which impacts KSFC's ability to claim depreciation on the part of capital goods linked to the countervailing duty claimed as Modvat credit.

In conclusion, the Court dismissed the appeal, upholding the Tribunal's decision in favor of the assessee and against the Revenue. The judgment highlights the importance of considering practical constraints and legal provisions when determining eligibility for Modvat credit, emphasizing fairness and justice in such matters.