Customs, Excise and Gold Tribunal - Mumbai
Terna Shetkari Sahakari Sakhar ... vs Commissioner Of Central Excise, ... on 16 May, 2001
Equivalent citations: 2001(138)ELT1225(TRI-MUMBAI)
ORDER
Gowri Shankar, Member (Technical)
1. The appeal is taken up for disposal with consent of both sides after waiving deposit.
2. The appellant manufactures sugar in its factory at Terna Nagar. In the financial year 1995-96 to 1997-98 it acquired various items of capital goods and in accordance with the provisions of rules 57Q and T took as modvat credit the duty paid on these items. Sub-rule (5) of Rule 57R prohibits taking credit of the duty paid on capital goods by a manufacturer also claims depreciation under Section 32 of the Income Tax Act, 1961 on that part of the capital goods which represent the amount of duty it would otherwise be available as credit. The counsel for the appellant does nt dispute that in that income tax return that it filed for the three financial year, the appellant had claimed depreciation of the price of the capital gods including the duty paid upon the. It is on this basis that notice was issued to the appellant proposing disallowance of the credit taken and imposition of penalty. In the impugned order the Commissioner has confirmed the proposal to disallow credit and impose penalty equal to the duty.
3. The three contention of the appellant before the Commissioner which its counsel reiterates before us, are separate but connected. it is first contended that, although the manufacturer claimed depreciation int he income tax return that it initially filed included in the value of the capital assets the amount of duty claimed as credit. it filed revised return for each of these three financial years, or "previous years" as they are known in Income Tax law, in which it excluded the duty taken as credit while calculating the value of this asset. These returns have been accepted by the Income Tax department and therefor have now become final. Hence no depreciation in effect has been claimed of the amount in respect of which modvat credit was availed.
4. The second contention is that, consequent upon an amendment to the definition of the term "actual cost" in the Income Tax Act made by the Finance Act, 1998 but effective from 1.4.94, even if depreciation had been claimed, it would have had to be disallowed by the assessing officer. The third contention is that even int he initial income tax return in which depreciation was claimed of that part of the value "modvated" duty, the appellant by its accounting practice included in the taxable income the amount of modvat credit. These, again effectively washed out this claim in the assessment.
5. The Commissioner has not dealt with the last point. The counsel for the appellant agrees that the second point was not raised before him. The first point the commissioner dismissed it by saying "there is no provision regarding filing of revised return which would legally allowed the assessee to rectify their mistake."
6. We do not find it possible for us to say that modvat credit under rule 57Q should be disallowed in a case simply because the manufacturer claimed depreciation on the value of the capital goods representing that amount of duty. it appears to us that the object behind rule 57R is to ensure that the manufacturer does not get benefit both the capital goods modvat credit and of the depreciation provision of the Income Tax. He has to avail of either one or the other. The amendment made by the Finance Act, 1988 to section 43(1) of the Income Tax Act to actual cost illustrates this point. By the amendment Explanation 9 has been added below Section 43(1) providing that the "actual cost" of asset acquired on or after 1.3.94 included the amount of additional duty of customs or Central Excise duty in respect of which claim of credit "has been made and allowed under the Central Excise Rules". This provision appears to us to be a mirror image of sub-rule (5) of rule 57R on the implication that claim for credit should not only have been made but should have been allowed. The position that claim for depreciation should have been permitted, appears to us to implicit in rule 5 of rule 57R. We would otherwise be left in a situation where a manufacturer is left with neither benefit. This could for example, happen in a situation where income tax disallowed the claim for depreciation on the capital assets for reason unconnected with the modvat credit, in that event the claim for depreciation of the entire cost of the capital assets which will include element of duty would not be available. It would then happen that the manufacturer merely because he had made a claim for depreciation wold be debarred fro takin modvat credit. In addition, the Commissioner's view that the filing of a revised return is not permissible ignores the provision 139(5) of the Income Tax Act, 1961. He ought to have considered this provision of the Act and satisfied himself by looking at the relevant income tax returns and other documents whether the claim merited consideration. We are of the view that he should at least do so. While doing so he may also consider the claim that the accounting practice followed by it, effectively washes out claim for depreciation under the Income Tax Act. The counsel for the appellant says that he will make submissions in these aspects supported by necessary evidence within two months from the receipt of this order. The Commissioner shall pass orders in accordance with law.
7. The appeal is accordingly allowed. Impugned order set aside.