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Issues:
Penalty imposed on appellants for irregular availment of Modvat credit while maintaining depreciation claim under Income-tax Act. Analysis: The appellants took Modvat credit on capital goods in 1995-96 without claiming depreciation under the Income-tax Act. The assessing authority allowed depreciation in the income-tax return after deducting the Modvat credit. The Central Excise authority disallowed the credit, but the Commissioner (Appeals) allowed it. The appellants recredited the amount in their Modvat account after a favorable decision. However, they did not withdraw their depreciation claim immediately. After an audit revealed the irregularity, they sought to withdraw the depreciation claim. A show cause notice was issued proposing to disallow the credit and impose a penalty for contravention of rules. The original authority disallowed the credit and imposed a penalty of Rs. 4 lakhs. The first appellate authority allowed the credit but upheld the penalty. The appellant challenged the penalty citing relevant case laws. The crucial issue was whether the appellants committed an offense by enjoying Modvat credit while maintaining the depreciation claim. The appellant's conduct between 1998 and 1999 was under scrutiny to determine if the penalty was justified. The Tribunal analyzed the case law and provisions related to penalties for irregular availment of credit. It was noted that where the demand of duty was set aside or the proposal for credit recovery was withdrawn, no penalty was imposed. The Tribunal upheld the consistent view that when the demand of duty was dropped, no penal provision could survive. The facts of a similar case supported the decision to vacate the penalty imposed on the appellants. Ultimately, the Tribunal set aside the penalty imposed on the appellants and allowed the appeal.
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