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2025 (1) TMI 1438 - HC - Central ExciseCENVAT Credit - whether the appellant is entitled to the benefit of CENVAT Credit under the CENVAT Credit Rules 2004 despite having claimed depreciation on the same capital goods under Section 32 of the Income Tax Act 1961? - violation of Rule 4(4) of the CENVAT Credit Rules 2004 - HELD THAT - The admitted fact on record is that the appellant availed CENVAT Credit on capital goods to the tune of Rs. 6, 36, 381 in the year 2001-02 and Rs. 2, 25, 141/- during the year 2002-03. During the course of audit of the financial and excise records of the appellant conducted by Central Excise audit team it was observed by the audit party that the assessee had simultaneously claimed the benefit of depreciation on the capital goods in their financial accounts as well as Income Tax returns for the relevant years. And admittedly it was only when it was pointed out to the appellant that they had availed two benefits the appellant revised their Income Tax return for the year 2003-04 on 31.05.2005 whereas the period in dispute was 2001-02 and 2002-03.The net result is that during the financial years 2001-02 and 2002-03 the appellant had availed and utilized CENVAT Credit on the capital goods and simultaneously claimed benefit of depreciation on these capital goods under Section 32 of the Income Tax Act 1961 in their Income Tax returns for the assessment years 2002-03 and 2003-04 and the benefit of said depreciation was never surrendered by them as they had neither filed the revised Income Tax returns for the assessment years 2002-03 and 2003-04 nor they had discharged the liability of additional income tax which would have accrued on account of surrender of benefit of depreciation so claimed during the above assessment years. As per the legal provisions the CENVAT Credit was not allowable to the appellant on the capital goods since they claimed depreciation on these goods in their books of accounts and Income Tax returns for the year 2001-02 and 2002-03 and as per Rule 4 (4) of CENVAT Credit Rules 2002/2004 the appellant did not fulfil the condition for allowing the CENVAT Credit therefore became liable for recovery of CENVAT Credit wrongly taken or erroneously refunded under Rule 14 of the CENVAT Credit Rules 2004. There are no infirmity in the impugned order dated 25.01.2011 passed by the learned Customs Excise and Service Tax Appellate Tribunal - appeal dismissed.
ISSUES PRESENTED and CONSIDERED
The primary issue considered in this judgment is whether the appellant is entitled to the benefit of CENVAT Credit under the CENVAT Credit Rules, 2004, despite having claimed depreciation on the same capital goods under Section 32 of the Income Tax Act, 1961. This involves examining whether the appellant's actions constituted a violation of Rule 4(4) of the CENVAT Credit Rules, 2004, and whether the subsequent reversal of depreciation claims through revised income tax returns rectifies the initial violation. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework centers around Rule 4(4) of the CENVAT Credit Rules, 2004, which stipulates that CENVAT Credit on capital goods is not allowed for the portion of the value of capital goods that represents the amount of duty claimed as depreciation under the Income Tax Act, 1961. This rule is designed to prevent the double benefit of both CENVAT Credit and depreciation on the same capital goods. Court's Interpretation and Reasoning The Court interpreted Rule 4(4) as prohibiting the simultaneous claiming of CENVAT Credit and depreciation on the same capital goods. The appellant admitted to availing both benefits, which the Court found to be a clear violation of the rule. The Court emphasized that the appellant's subsequent action of filing revised income tax returns did not retroactively correct the initial breach of the rule. Key Evidence and Findings The appellant initially availed CENVAT Credit amounting to Rs. 2,78,012/- on capital goods and simultaneously claimed depreciation on these goods in their income tax returns. The audit conducted by the Central Excise team revealed this dual benefit, prompting the appellant to file a revised income tax return. However, the revised return was for a later assessment year, and no revised returns were filed for the years in which the dual benefit was claimed. Application of Law to Facts The Court applied Rule 4(4) to the facts, concluding that the appellant's actions constituted a violation of the rule. The appellant's failure to file revised income tax returns for the relevant years meant that the dual benefit was not effectively reversed. Consequently, the CENVAT Credit availed was deemed inadmissible, and the appellant was liable for recovery of the credit under Rule 14 of the CENVAT Credit Rules, 2004. Treatment of Competing Arguments The appellant argued that the reversal of depreciation claims through revised income tax returns should entitle them to retain the CENVAT Credit. However, the Court rejected this argument, noting that the revised returns did not cover the assessment years in which the dual benefit was initially claimed. The respondent's position, that the dual benefit was rightly disallowed, was upheld by the Court. Conclusions The Court concluded that the appellant was not entitled to the CENVAT Credit due to the violation of Rule 4(4) and affirmed the decision of the Customs, Excise and Service Tax Appellate Tribunal to disallow the credit and impose penalties. SIGNIFICANT HOLDINGS The Court held that the simultaneous claiming of CENVAT Credit and depreciation on the same capital goods is a violation of Rule 4(4) of the CENVAT Credit Rules, 2004. The filing of revised income tax returns does not rectify the initial violation if the returns do not cover the relevant assessment years. The Court affirmed the Tribunal's decision to disallow the CENVAT Credit and impose penalties, emphasizing the importance of adhering to the conditions set forth in the CENVAT Credit Rules. The appeal was dismissed, and the Tribunal's order was affirmed, with the Court finding no infirmity in the Tribunal's decision. All pending applications related to the case were also disposed of.
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