2010 (3) TMI 542 - HC - Service Tax

Cenvat Credit - Respondent-assessee is having its factory at Bommasandra Industrial Area, engaged in the manufacture of excisable goods falling under Heading Nos. 8714, 8483, 8708 and respondent is availing Cenvat Credit of duty paid on inputs/capital goods. . During 2000-01, assessee purchased capital goods and availed 50 per cent of Cenvat credit on capital goods as per the prevailing rules and it had also availed depreciation under section 32 of IT Act in respect of the remaining 50 per cent of Cenvat credit which was not availed by it. For the next financial year on the unavailed 50 per cent, it claimed benefit. Revenue denied said credit on the ground that assessee had availed 50% of cenvat credit for relevant on ground that assessee had availed 50% of Cenvat Credit and having claimed depreciation. Held that - the assessee could not claim depreciation under section 32 in respect of non-utilized cenvat credit and claim benefit for the relevant assessment year having claimed depreciation under the Income Tax Act. Accordingly, the question of law was to be answered in favour of the revenue and against the assessee.

Summary

Issues:
- Interpretation of Cenvat Credit Rules regarding availing Cenvat credit and depreciation under section 32 of the Income-tax Act.
- Validity of the Tribunal's decision in allowing the appeal of the assessee.
- Imposition of penalty and interest by the revenue.

Interpretation of Cenvat Credit Rules:
The case involved a dispute regarding the assessee availing Cenvat credit during the second year and claiming depreciation under section 32 of the Income-tax Act for the remaining unutilized credit from the previous year. The revenue contended that the assessee was not entitled to claim credit again in the subsequent assessment year after utilizing 50% of the Cenvat credit in the first year. The Tribunal's decision was challenged on the grounds of misinterpretation of the relevant provisions of law and non-application of mind. The High Court held that the Tribunal erred in not considering sub-rule (4) of rule 4 of the Cenvat Credit Rules. The Court concluded that the assessee cannot claim depreciation under section 32 of the Act for non-utilized Cenvat credit and also claim the benefit for the subsequent assessment year. The judgment favored the revenue on this issue.

Validity of Tribunal's Decision:
The Tribunal had allowed the appeal of the assessee, rejecting the revenue's contention that the show-cause notice and imposition of penalty and interest were justified. The counsel for the assessee argued that the assessee had reversed the credit much before the show-cause notice was issued, making the proceedings initiated by the revenue not maintainable. The High Court, after considering the arguments, concluded that if the entry had been reversed by the assessee before the receipt of the show-cause notice, the revenue could not levy penalty or interest. The Court set aside the penalty and interest imposed by the revenue, ruling in favor of the assessee on this aspect.

Imposition of Penalty and Interest:
The High Court addressed the issue of penalty and interest levied by the revenue, emphasizing that if the entries had been reversed by the assessee before the show-cause notice was received, the revenue could not impose penalty or interest. The Court ruled that on this point, the appellant (revenue) had not raised any question of law. Consequently, the High Court set aside the penalty and interest, aligning with the assessee's position on this matter.

In conclusion, the High Court allowed the appeal, favoring the revenue on the interpretation of Cenvat Credit Rules issue, while ruling in favor of the assessee on the validity of the Tribunal's decision and the imposition of penalty and interest by the revenue.