2009 (3) TMI 272 - AT - Central Excise

Area based exemption cenvat on capital goods appellants availing exemption under Notification No. 39/2001-C.E. this notification prescribes exemption by way of refund to duty paid in excess of what paid by utilizing credit - Even though appellants had taken Cenvat credit up to December 2004, in January 2005 they had reversed full amount of Cenvat credit and opted to claim depreciation under Section 32 of Income-tax Act, 1961. At the time when clearances started from the appellants unit, there was no Cenvat credit available in their account and as pointed out by the learned counsel there was nothing wrong in the unit taking a decision to claim depreciation in stead of Cenvat credit and reversing the same before they started clearance of goods from their factory. In fact the credit was taken as well as reversed in the same financial year. Under these circumstances we find that the refunds have been sanctioned correctly to the appellants

Summary

Issues:
Whether the appellants can be compelled to avail credit of duty paid on capital goods when claiming depreciation under Section 32 of the Income-tax Act, 1961.

Analysis:
The appellants, located in Kutch District of Gujarat, were availing exemption under Notification No. 39/2001-C.E. for excisable goods. They initially purchased capital goods and entered details in their Cenvat Account. The commercial production started in January 2005, and the appellants decided to forego the capital goods credit to avail depreciation under Section 32 of the Income-tax Act. Subsequently, proceedings were initiated against the appellants to recover a refund claimed for a period, alleging that they should have first utilized the credit balance for duty payment on finished goods. The department's stand was upheld, leading to the appeal.

The appellants argued that Rule 4(4) of the Cenvat Credit Rules, 2004 prohibits CENVAT credit for capital goods if depreciation under Section 32 of the Income-tax Act is claimed. They contended that they had not availed Cenvat credit on capital goods as reflected in their audited Balance Sheet. The appellants emphasized that once they opted for depreciation under the Income-tax Act, they were not obligated to avail credit under Cenvat Credit Rules. They asserted that the department cannot compel them to take credit not admissible under the law and argued that the demands were time-barred since all facts were known to the department based on their ER-1 returns.

The Revenue highlighted a closing balance in December 2004, which the appellants should have used for duty payment on clearances made from December 2004 onwards. However, it was acknowledged that the Cenvat credit on capital goods was not available during the relevant period for refund recovery. The Revenue agreed that the reversal of credit by the appellants in January 2005 aligned with the notification's purpose.

The Tribunal considered both sides' submissions and found that the appellants had reversed the Cenvat credit in January 2005 to claim depreciation under the Income-tax Act before commencing clearances. As there was no Cenvat credit available when clearances began, the Tribunal concluded that the refunds were correctly sanctioned to the appellants. Consequently, the appeal was allowed with consequential relief.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Ahmedabad, provides a comprehensive overview of the issues involved, the arguments presented by both parties, and the Tribunal's decision based on the legal provisions and factual circumstances presented during the proceedings.