Customs, Excise and Gold Tribunal - Tamil Nadu
Lakshmi Machine Works vs Cce on 3 November, 2004
Equivalent citations: 2005(99)ECC272, 2003(151)ELT701(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. This appeal filed by M/s. Lakshmi Machine Works Ltd., the appellants herein is directed against the Order-in-Original No. 16/2002 dated 22.3.2002 passed by the Commissioner of Central Excise, Coimbatore, whereby the Commissioner has disallowed Modvat Credit of Rs. 1,62,69,109 (Rupees One crore sixty two lakhs sixty nine thousand one hundred and nine) and ordered recovery of the same under Rule 57U (3) of the CE Rules, 1944 read with Section 38A of the CE Act, 1944. He has also ordered appropriation of the equivalent amount towards the above duty liability as he has noted that the assessee has already debited the amount vide PLA RG23A Part II and RG23 C Part II. He has also imposed penalty of Rs. 10,00,000 (Rupees ten lakhs) under Rule 173Q of the Rules ibid read with Section 38A of the CE Act, 1944, apart from another penalty of Rs. 19,09,367 under Rules 57U(6) and 173Q of the Rules ibid read with Section 38A of the Act ibid. He has also ordered recovery of appropriate interest on the said credit of Rs. 19,09,367 which has been availed after introduction of Rule 57U(3), in terms of Rule 57U(8) of the Rules ibid read with Section 38A of the Act ibid. He has dropped proceedings initiated for recovery of Modvat Credit of Rs. 63,60,318 and another sum of Rs. 79,98,719.
2. Brief facts of the case are that the appellants are engaged in the manufacture of textile machinery and accessories falling under chapter heading 8445 and 8448 of the CETA, 1985. It was alleged that the appellants have contravened the provisions of Rule 57R(8) of erstwhile CE Rules, 1944 inasmuch as they had availed credit under Rule 57Q and also claimed depreciation under Section 32 of the Income Tax Act, 1961 or wrote off as Revenue expenditure that part of the value of the capital goods which represented the amount of specified duty on such capital goods. They were availing Modvat Credit under Rule 57Q of the CE Rules, 1944 on various capital goods and were filing necessary declarations in terms of Rule 57T. It was also alleged that the assessee also leased out two machines to M/s IPBM who availed credit of Rs. 30,26,874 and the lessor viz. appellants claimed depreciation including the duty element in that case also in contravention of Rule 57R. The details of such wrong credit availed according to the department has been worked out at Rs. 1,68,27,044, as detailed on page 2 of the impugned order. It was in these circumstances that show cause notices were issued which culminated in the order of adjudication which is challenged in this appeal.
3. Shri G. Suresh, Chartered Accountant appeared for the appellants that the allegation is that the appellants have availed double benefits viz. depreciation under Section 32 of the Income Tax and Modvat Credit on capital goods under Rule 57Q. He has invited our attention to the synopsis submitted by the appellants in the Court on 3.11.2004. It is stated therein that correct depreciation was allowed by the Income Tax Department on the value of fixed assets after subtracting the modvat credit amount in the revised assessment order dated 27/31 January 2000 and this factual position has been accepted and confirmed by the Commissioner in para 15 of the impugned order. The relevant portion reads as under:
"Revised computation of total income was filed by M/s LMW rectifying the mistake under Section 154 of the Income Tax Act. The Joint Commissioner of Income Tax in his assessment order dated 27/31 January 2000 allowed correct depreciation for each assessment years on the value of the fixed assets after subtracting modvat credit. The total Modvat Credit involved in respect of this aspect is Rs. 1,29,00,229.
He has submitted that the Commissioner has also recorded a finding in para 13.(v) on page 21 of the impugned order to the effect that the relevant IT returns year-wise was verified and it was found by the authorities that the excess depreciation claimed on the Modvat portion was added back to the income under respective assessment years and income tax was paid on 2.2.2000. He submitted that having accepted the factual position regarding correct depreciation allowed, the adjudicating authority was bound to follow the decision of the Tribunal in the case of Terna Shetkari Sehakari Sakhar Karkhana Ltd., 2001 (46) RLT 1079 and also the order of the Tribunal in the case of KV Mills, Coimbatore vide Final Order No. 1928/2001 dated 9.11.2000, (reported in 2002 (149) ELT 79) which were cited by the appellants. But the adjudicating authority was inclined to follow the above decisions for the only reason that the orders arc in the de novo proceedings and no final decision has been arrived at on those issues and hence the contention of the assessee cannot be accepted. He has also relied upon the decision of the Tribunal in the Pasari Spinning Mills Ltd. v. CCE, Bangalore, 2002 (141) ELT 172 (Tri.Bang), Terna Shetkari SSK Ltd. v. CCE, Aurangabad, 2003 (159) ELT 777 (Tri.-Mumbai), Meridian Industries Ltd. v. CCE, Coimbatore, passed by the South Zonal Bench vide Final Order No. 22/2003 dated 21,1.2003, GTV Spinners Ltd. v. CCE, Coimbatore, 2002 (150) ELT 297 (Tri.-Chennai), TNSCP Spinning Mills v. CCE, Chennai, 2002 (82) ECC 83 (T): 2002 (150) ELT 715 (Tri.Chennai), in support of his contention that Modvat Credit on capital goods cannot be denied to them merely on the ground that depreciation was claimed on total value under Section 32 of the Income Tax Act. He submitted that out of the demand of a sum of Rs. 1,62,69,109 which was disallowed as inadmissible Modvat Credit, the appellants accept the liability to the ex tent of Rs. 4,52,969 and another sum of Rs. 5,24,000 and hence the balance disputed amount is only Rs. 1,52,92,140, as mentioned in the EA-3 form.
As against that, the appellants have already paid a sum of Rs. 1,83,41,250, vide para 3 of the order in original and thus there is excess payment made by the appellants. He further submitted that it is well settled that no penalty can be imposed when duty has been paid before issue of show cause notice and in support of his plea, he relied upon the decision of the Larger Bench in the case of CCE, Delhi-III v. Machino Montell (I) Ltd., 2004 (96) ECC 180 (LB): 2004 (62) RLT 709 (CEGAT-LB). He in the circumstances prayed for allowing the appeal.
4. Heard Shri C. Mani, learned JDR who reiterated the department's view. He submitted that in the present case, appellants took the Modvat Credit as well the benefit under Income Tax Act initially and the issue of double benefit was not detected by the assessees themselves and on being pointed by the IA Section of the Department, the assessee paid the wrongly availed credit.
5. We have carefully considered the submissions made by both the sides and gone through the case records and perused the various case laws cited. The issue that arises for our consideration is whether the appellants have claimed double benefit i.e. depreciation under the Income Tax Act on the value of the capital goods and Modvat Credit under Rule 57Q of the CE Act, 1944. We observe that in the present case, as seen from the Assessment order dated 27.1.2000/31.1.2000, issued by the Joint Commissioner of Income Tax, under Section 154 of the Income Tax Act, on the request made by the appellants to revise the assessment for the reason that there was a mistake on their part in deducting the Modvat Credit from the value of the stock of tools instead of from the cost of asset included in the block of assets, in the earlier returns submitted, the Income Tax Department after due verification of the facts, revised the assessment. The Order-in-Original in fairness has noted this factual position, vide para 15 (viii), page 26, by observing that:
"Revised computation of total income was filed by M/s. LMW rectifying the mistake under Section 154 of the Income Tax Act. Joint Commissioner of Income Tax in his assessment order dated 27/31 January, 2000 allowed correct depreciation for each assessment years on the value of the fixed assets after subtracting modvat credit".
The Commissioner has also noted as under in para 13 (v) on page 21 of the Order-in-Original:
"The relevant IT returns assessment year-wise were verified and it is noticed that the excess depreciation claimed on the Modvat portion was added back to the income under respective assessment years and income tax was paid on 2.2.2000".
In spite of the above factual position, the benefit of Modvat Credit is sought to be denied to the appellants on the ground that the appellants have taken simultaneous benefit i.e. Modvat credit under Section 57Q of the CE Act, 1944 and depreciation under Section 32 of the Income Tax Act, 1944. We note that when on realizing the mistake in regard to taking Modvat Credit on certain portion of the duty amount, the appellant revised the income tax return which has been accepted by the IT Department and in the face of the undisputed fact that the excess depreciation claimed on the Modvat portion was added back to the Income tax under the respective years, it cannot be said the assessee-appellants have claimed double benefits. Therefore, on going through the entire evidence on record, we are convinced that the appellants cannot be said to have taken any double benefit. We observe that in identical situation, the Mumbai Bench of the Tribunal in the case of Terna Sehetkara Sahakari Sakhar Karkhana Ltd. v. CCE, Aurangabad, 2001 (138) ELT 1225 has held that discarding of appellants' plea that amount of Modvated duty subsequently excluded in the revised return, on ground that filing of revised income tax return not permissible, is against specific provisions of Section 139(5) of IT Act. It was also held therein that Modvat Credit on capital goods cannot be denied merely on ground that the assessee made claim for depreciation. We, further find that this Bench of the Tribunal also took similar view in the case of KV Mills v. CCE, Coimbatore, 2002 (149) ELT 796 wherein the Tribunal followed the ratio of the ruling of the West Regional Bench in the case of Terna Shetkari Sahakari Karkhana Ltd. (supra). Similar view was also taken by the Bangalore Bench of the Tribunal in the case of Pasari Spinning Mills Ltd. v. CCE, Bangalore, 2002 (141) ELT 172 wherein also the Bench followed the ratio of the Bombay Bench of the Tribunal (supra). In view of our discussion and finding above and following the ratio of the rulings cited supra, we come to the conclusion that the charge against the appellants that they have taken double benefit does not survive and we order accordingly.
6. So far as imposition of penalty under Rules 57U(6) and 173Q is concerned, we note that the amount of duty (Modvat Credit) which had been disallowed had already been paid by the appellants before the issue of show cause notice. It is well settled law that when duty has been paid before issue of show cause notice, penalty cannot be imposed and so also demand of interest cannot survive. On {sic, one) such decision is by the Larger Bench in the case of CCE, Delhi-III v. Machino Montell (I) Ltd., 2004 (96) ECC 180 (LB) : 2004 (62) RLT 709. In view of above, the order of imposition of penalty and demand of interest is vacated. In the result, the appeal succeeds and is allowed. Appellants are entitled to consequential relief, if any, as per law.