2003 (11) TMI 228 - AT - Central Excise

Summary

Issues: Denial of credit and penalty imposed on lease rental payment for capital goods acquired under lease agreements.

In this judgment by the Appellate Tribunal CESTAT, Mumbai, the issue revolved around the denial of credit and penalty imposition concerning the payment of lease rentals for capital goods acquired under lease agreements, specifically in contravention of Rule 57(3)(ii)(b). The rules initially allowed for credit on capital goods taken on lease/rental under Rule 57R(3). However, an amendment was introduced through Notification No. 26/94-C.E. (N.T.) on 17-6-1994, which empowered the Central Government to impose restrictions. The amended sub-rule outlined specific procedures to be followed, emphasizing the need for strict interpretation. The appellants argued that the financing company's certificate was not required as M/s. Bajaj Auto Ltd. was not a financing company but a lessor. The lower authority had deemed M/s. Bajaj Auto Ltd. as a financing company based on their financing of the supplied moulds. However, the Tribunal disagreed, stating that being a lessor who financed the leased property did not automatically classify one as a financing company, thereby rejecting the lower authority's interpretation.

The Tribunal further clarified that since the supplier of the moulds was not considered a financing company, the procedural requirement of Rule 57R(3)(ii)(b) did not apply, leading to the conclusion that the denial of credit was unjustified. Consequently, when the credit eligibility was established, the penalty imposed could not be upheld. Therefore, the appeal was allowed in favor of the appellants, highlighting the importance of correctly interpreting the procedural requirements and definitions within the relevant rules to determine credit eligibility and penalty imposition in cases of lease agreements for capital goods.