2010 (3) TMI 414 - HC - Central Excise

Cenvat Credit- Respondent-assessee, engaged in the manufacture of excisable goods and respondent is availing Cenvat Credit of duty paid on inputs/capital goods. During 2000-01 assessee purchased capital goods and availed 50% of Cenvat credit on capital goods as per the prevailing rules and it had also availed depreciation under Sec.32 of IT Act in respect of the remaining 50% of Cenvat credit which was not availed by it . For the next financial year on the un-availed 50% claimed benefit. Revenue having noticed that the assessee claiming depreciation under the Income Tax Act and also availing Cenvat credit in respect of un-used 50% in the previous year, issued a show cause notice calling upon the respondent-assessee to pay duty and also to pay interest and penalty. Tribunal allowed assessee s appeal. Held that-Tribunal Committed serious error in not considering Rule 4(4) and without considering how benefit of depreciation u/s 32 of IT Act and benefit of Cenvat Credit in subsequent year available. Thus question answered in favour of revenue.

Summary

Issues:
1. Interpretation of Rule 4(2)(b) of Cenvat Credit Rules regarding availing Cenvat Credit during the second year.
2. Application of Rule 4(4) of Cenvat Credit Rules in claiming depreciation of the remaining 50% of the value of capital goods.
3. Validity of the show cause notice issued by the Revenue.
4. Justification of levy of interest and penalty by the Revenue.
5. Proper interpretation of sub-rule (4) of Rule 4 of Cenvat Credit Rules.

Analysis:
1. The case involved a challenge by the revenue against the order passed by CESTAT, South Zone Bench, Bangalore. The substantial question of law raised was whether the assessee was correct in availing Cenvat Credit during the second year as per Rule 4(2)(b) of Cenvat Credit Rules. The facts revealed that the respondent-assessee had purchased capital goods and availed 50% of Cenvat credit on them in the previous year. The revenue contended that the assessee should not have claimed credit again in the subsequent year after availing depreciation under Sec. 32 of the Income Tax Act for the remaining unutilized credit.

2. The issue of claiming depreciation under Sec. 32 of the Income Tax Act for the remaining 50% of the value of capital goods was also raised. The revenue argued that the assessee was not entitled to claim credit again in the next assessment year after availing depreciation in the previous year. The tribunal had allowed the appeal of the assessee, but the High Court found that the tribunal had erred in not considering sub-rule (4) of Rule 4 of Cenvat Credit Rules. The court held that the assessee cannot claim depreciation for the unutilized Cenvat credit and also claim the benefit for the relevant assessment year after already availing depreciation under the Income Tax Act.

3. The validity of the show cause notice issued by the Revenue was challenged by the assessee's counsel, who argued that the entries had been reversed much before the notice was received. The High Court agreed that if the entries had been reversed, the Revenue could not levy penalty or interest. However, since the appellant did not raise any question of law on this point, the court did not delve further into it.

4. The court ultimately allowed the appeal, ruling in favor of the Revenue and against the assessee. It held that the tribunal had wrongly granted relief to the assessee due to an improper interpretation of the relevant rule. The court emphasized that the assessee could not claim depreciation under Sec. 32 of the Income Tax Act for the unutilized Cenvat credit while also claiming benefits in the subsequent year. The substantial question of law was answered in favor of the Revenue, and the appeal was allowed.