2021 (6) TMI 259 - AT - Central Excise

Calculation of depreciation of capital goods for reversing the credit - whether the straight line method or the written down value method has to be adopted for calculating the depreciation? - HELD THAT - It is seen that the Commissioner (Appeals) has directed to calculate the depreciation by giving an overall limit of 70%. The appeal was only with regard to the question as to whether the straight line method or the written down value method has to be adopted for calculating the depreciation. In such circumstances, when both sides did not have any contentions as to the rate of 2.5% applied, the Commissioner (Appeals) ought not to have given any direction to calculate the depreciation by subjecting it to a cap of 70%. The Tribunal in the case of SIDDHARTH POLYSACKS PVT. LTD. VERSUS COMMR. OF C. EX. SERVICE TAX, JAIPUR-I 2015 (12) TMI 70 - CESTAT NEW DELHI , on the very same issue of the method that has to be adopted for calculation of depreciation prior to 27.02.2010, has held that the straight line method has to be adopted. The duty has to be determined by applying 2.5% per quarter and calculating depreciation adopting the straight line method - the matter is remanded to the Original Authority, who shall calculate the depreciation adopting the straight line method - Appeal allowed by way of remand.

Summary

Issues:
1. Liability to reverse CENVAT Credit on sold capital goods.
2. Method of depreciation calculation for reversing credit.
3. Scope of appellate authority to pass orders beyond appeal grounds.

Analysis:
1. The case involved the liability of the appellants to pay an amount equal to the credit availed on capital goods sold without reversing the CENVAT Credit. The Original Authority confirmed the demand, which was challenged before the Commissioner (Appeals) and later before the Tribunal at Chennai. The Tribunal upheld the Commissioner's decision regarding the liability to reverse the credit.

2. The dispute centered around the method of depreciation calculation for reversing the credit. The Original Authority considered the straight line method or the written down value method. The Commissioner (Appeals) remanded the matter back for re-computation, directing the Original Authority to adopt the written down value method and set a maximum cap of 70% on depreciation value. The appellant disagreed and argued for the straight line method, citing relevant legal provisions and precedents.

3. The appellant contended that the Commissioner (Appeals) exceeded the scope of the appeal by directing a cap on depreciation value, which was not the subject of dispute. The appellant argued that the appellate authority cannot pass orders beyond the appeal grounds to the detriment of the appellant. Citing a decision of the Hon'ble High Court of Madras, the appellant emphasized the importance of adhering to the scope of the appeal.

4. After considering the arguments and relevant legal provisions, the Tribunal set aside the impugned order and directed the Original Authority to calculate depreciation using the straight line method at 2.5% per quarter. The Tribunal relied on previous decisions that supported the adoption of the straight line method for calculating depreciation before a specific legislative amendment. The Tribunal allowed the appeal on these terms, providing consequential reliefs as per law.

This detailed analysis highlights the key issues of liability for reversing CENVAT Credit, the method of depreciation calculation, and the scope of appellate authority's powers, culminating in the Tribunal's decision to adopt the straight line method for depreciation calculation in this case.