Commissioner of Central Excise and Customs vs Nish Fibres

K.A. Puj, J.—The Commissioner of Central Excise and Customs, Surat-II, Surat has filed this Tax Appeal u/s 35G of the Central Excise Act, 1944, proposing to formulate the following substantial questions of law for determination and consideration of this Court:

(i) Whether in the facts and circumstances of the present case, the Tribunal has committed substantial error of law in allowing the benefit of Modvat credit when the same was not admissible in terms of Rule 57R(8) of Central Excise Rules, 1944 and further there was no such alternative provision under the said Rule to accept the subsequent variation on account of revised claims filed by the assessee?

At the time of hearing of this Tax Appeal for admission, Mr. R.J. Oza, the learned Senior Standing Counsel has proposed following two additional questions of law:

(i) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in applying decision in case of 2003 (86) ECC 97 given on the jurisdictional fact that the assessee had filed a revised income tax return for relevant year for correction of mistake of taking depreciation before issue of show cause notice by the Department, whereas, in case of the respondent, the assessee has after long time of issuing show cause notice withdraw the depreciation claim by filing revised return, which establishes earlier mens rea of the respondent?

(ii) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in not following decision in case of 2005 (192) ELT 490 distinguishing decision of Tribunal in case of 2003 (86) ECC 97

It is the case of the Appellant that the Respondent M/s Nish Fibres is engaged in the manufacturing of Texturised Yarn falling under Chapter 54 of Central Excise Tariff Act, 1985, holding central excise registration.

The respondent assessee availed Modvat credit on capital goods totally amounting to Rs. 5,10,663/- in the year 1995. During the verification of records, it was noticed that the respondent assessee has claimed depreciation on the amount representing central excise duty paid on the said capital goods. As per provisions of Modvat Credit Rules, Modvat Credit on capital goods is available only if no depreciation on such amount representing central excise duty on the said capital goods is claimed. The respondent assessee had filed declaration under Rule 57-T of Central Excise Rules 1944 wherein it is declared that they will not claim depreciation u/s 32 of the Income Tax Act, 1961 on the part of the value of the capital goods which represents the amount of specified duty paid on the said capital goods.

The Joint Commissioner, Central Excise and Customs issued show cause notice dated 17.4.2000, inter alia, calling upon the assessee to show cause as to why modvat credit amounting to Rs. 5,10,663/- wrongly availed under modvat scheme for capital goods should not be recovered from the assessee under proviso to Rule 57 U(2) of Central Excise Rules, 1944. The said show cause notice was adjudicated by the Joint Commissioner and order in original was passed on 9.9.2002 disallowing the modvat credit of Rs. 5,10,663/- and ordered for recovery of the amount from the respondent assessee in terms of proviso to Rule 57-U(2) of the Central Excise Rules, 1944.

Being aggrieved by the said order in original, the respondent assessee filed an appeal before the Commissioner (Appeals), who vide his order dated 13.9.2006 allowed the said appeal. The department, being aggrieved by the said order of Commissioner (Appeals), preferred an appeal before the CESTAT and the CESTAT vide its order dated 14.5.2008 confirmed the order of Commissioner (Appeals) after following the decision of the Tribunal in the case of 2003 (86) ECC 97 While allowing the said appeal, the Tribunal has observed that the respondent assessee has filed revised income tax return without claiming depreciation. The Tribunal has further observed that when the claim regarding depreciation was withdrawn by filing revised return, denial of modvat credit in respect of capital goods cannot be upheld.

It is this order of CESTAT which is challenged in the present Tax Appeal.

Mr. R.J. Oza, the learned Senior Standing Counsel appearing for the Central Excise Department has submitted that the order of M/s Alxobex Metals Ltd. (supra) relied upon by CESTAT was subsequently distinguished by the Chennai Tribunal in the case of 2005 (192) ELT 490 He has however, invited our attention to subsequent decision of Chennai Tribunal in C.C.E., Coimbatore v. Veejay Lakshmi Engineering Works Ltd. - 2009 (238) E.L.T. 462 (Tri. Chennai). On the basis of these decisions, he has submitted that the question of law does arise out of the order of the CESTAT and the appeal should be admitted.

We have considered the submissions made by Mr. R.J. Oza, the learned Senior Standing Counsel and perused the order under appeal as well as all the three decisions of the Tribunals, which are referred to hereinabove.

The moot question for our consideration is as to whether the respondent assessee has, in fact, claimed the depreciation and whether such claim has been allowed by the department. If the claim of depreciation is allowed then in that case the assessee cannot claim modvat credit under the Central Excise Act. However this very aspect has been factually verified by the Commissioner (Appeals). It is specifically observed that in order to confirm the authenticity of the certificate, the predecessor of the Commissioner (Appeals) wrote a letter to the Commissioner of Income Tax, Surat with the request to confirm the authenticity of the said certificate, and in reply to that letter, the Commissioner of Income Tax has certified the authenticity of the said certificate. He, therefore, observed that the appellant has not availed depreciation on the value representing the amount of duty under the Income Tax Act, and therefore, he has not endorsed the view of the adjudicating authority. He has also observed that the condition for availment of modvat credit on capital goods is complied with by corrective method, even if at a later stage, and hence, the substantial benefit should not be denied. The CESTAT has also taken the same view.

So far as the judgment relied upon by Mr. R.J. Oza, i.e. M/s Narayan Krishna Spinners Ltd. v. Commissioner of C. Ex., Coimbatore (supra) is concerned, the facts are very clear. It is specifically observed therein that the depreciation claim of Rs. 40,626/- has not been withdrawn by the said appellant. The mis-declaration by the appellant under Rule 57-T was crystal clear. The Tribunal has therefore, taken the view in that case that the facts and circumstances are substantially different from those of Alcobex Metals Ltd. Supra).

It is important to note here that, in the case of C.C.E Coimbatore v. Veejay Lakshmi Engineering Works Ltd. (supra), the Tribunal has, in terms, held that as the Respondent assessee had withdrawn the inadmissible claim for depreciation in the I.T. Return, though not immediately, by such action they absolved of the charge that they had availed the benefit of capital goods credit and claimed depreciation for the same amount simultaneously. The case of M/s Narayan Krishna Spinners Ltd. v. Commissioner of C. Ex., Coimbatore (supra) was relied upon by the Revenue. The Tribunal has however held that the fact of the decision cited are not comparable to the facts of the instant case, and hence, ultimately, the Tribunal has dismissed the appeal filed by the Revenue. Moreover, in that decision, the Tribunal has relied on a decision in the case of Chandra Praba Cottage Spinning Mills v. CCE, Salem 2006 (203) E.L.T. 578 (Tri. Chennai), wherein the demand of Cenvat credit and penalty imposed on the appellants had been vacated.

In view of the above discussion, we are of the view that the position is well settled in law. The whole idea is that the assessee should not be permitted to claim double benefit, i.e. under the Income Tax Act as well as Central Excise Rules. Admittedly, the appellant has not claimed the benefit under the Income Tax Act and the claim regarding depreciation was withdrawn by filing the revised return and that revised return has been accepted. Considering these undisputed facts, there is no reason to deny the modvat credit to the respondent assessee. We therefore do not find any substance in this appeal and no substantial question of law arises out of the order of the Tribunal. The appeal therefore stands dismissed.