Customs, Excise and Gold Tribunal - Bangalore
Sundara Industries (I) (P) Ltd. vs Commissioner Of C. Ex. on 10 January, 2006
ORDER T.K. Jayaraman, Member (T)
1. The appellants imported Capital goods with financial assistance from M/s. Karnataka State Financial Corporation Ltd. (hereinafter referred to as KSFC) on lease for a cost of Rs. 150 lakhs. The CV duty paid was Rs. 15,39,877/-, which was taken as Modvat credit by the appellants. The Revenue proceeded against the appellants for denial of Modvat credit of CVD of Rs. 15,39,877/- for their failure to produce the requisite certificate/documents from KSFC in accordance with the provisions of Rule 57R of the erstwhile Central Excise Rules, 1944. The Original Authority apart from denying the Modvat credit, imposed a penalty of Rs. 50,000 under Rule 173Q for the contravention of Rule 57G read with Rule 57R. The Commissioner (Appeals) upheld the Original order in his Order-in-Appeal No. 218/2002-C.E., dated 28.3.2002. This is the impugned order which is strongly challenged by the appellants.
2. Shri G. Shivadass, learned Advocate appeared for the appellants and Shri K.S. Reddy leaned JDR appeared for the Revenue.
3. The learned Advocate invited our attention to the provisions contained in Section 32, Section 43 of the Income Tax Act and also Rule 57R of the Central Excise Rules, 1944 and submitted that the appellants have complied with all the provisions of the law and it is not proper to deny the Modvat on the ground that KSFC has not issued a certificate for non-availment of depreciation on that portion of the cost of the imported item representing CVD.
4. The learned JDR re-iterated the Order-in-Appeal.
5. We have gone through the records of the case carefully. The relevant portion of Rule 57R(3) is reproduced below:
Rule 57R. Credit of duty not to be allowed or denied or varied in certain circumstances and adjustment in duty credit.
(1). xxxxx (2). xxxxx (3). The credit of the specified duty paid on the capital goods shall be allowed to manufacturer if the capital goods are acquired by the manufacturer on lease, hire purchase or loan agreement from a financing company subject to the following procedure, namely:
(i) xxxxx
(ii) The manufacturer availing credit of the specified duty paid on capital goods, who has entered into a financial arrangement,-
(a) xxxxx
(b) for financing the cost of such capital goods including the specified duty, shall produce a certificate from the financing company to the effect that the duty specified on such capital goods has been paid by the said manufacturer to such financing company prior to payment of first lease rental instalment or first hire purchase instalment or first instalment of re-payment of loan, as the case may be, along with a copy of the agreement entered into with the said financing company.
(iii) The manufacturer and the financing company shall not claim depreciation under the Income Tax laws on that part of the value of capital goods which represents the amount of specified duty paid on such capital goods.
A careful perusal of the said Rules reveals that in order to claim the Modvat credit, the appellant should have repaid the countervailing duty before payment of the first instalment of the loan to the financier. In the present case, the fact that CVD has been paid is not in dispute. Further the appellants have deposited the duty amount to the financier as per the requirement of Rule 57R. They have requested the financier to issue a certificate to the effect that (i) they had paid CV duty (ii) M/s. KSFC have not claimed depreciation on CVD amount. Due to some disputes between M/s. KSFC and the appellants, KSFC have not issued the certificate. However, the appellants contend that they had already informed KSFC that they would be availing the Modvat credit. In these circumstances, KSFC cannot claim depreciation on the amount representing CV duty in view of explanation 9 to Section 43 of the Income Tax Act introduced retrospectively with effect from 1.3.1994 amending the definition of Actual Cost in the following manner:
Explanation 9 - For the removal of doubts, it is hereby declared that where an asset is or has been acquired on or after the 1st day of March, 1994 by an assessee, the actual cost of asset shall be reduced by the amount of duty to excise or the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944.
In view of the above explanation, we agree with the submission of the learned Advocate that in a claim made for Modvat credit and depreciation, the former takes precedence and if claim for credit is made, depreciation has to be ipso facto disallowed and not vice versa. In other words, when the appellants have made known to the KSFC that they are taking credit of CVD paid, then KSFC cannot claim depreciation in view of the provisions of Rule 57R and Explanation 9 to Section 3 of the Income Tax Act. Reliance was placed on the decision of the Hon'ble Apex Court in the case CC v. Tullow India Operation Ltd. wherein it was held that non-compliance of a condition beyond the assessee's control and powers cannot result in the denial of a substantial benefit. In the peculiar facts and circumstances of the case, the denial of Modvat credit to the appellants on the ground that KSFC has not furnished the required certificate would result in gross miscarriage of justice. Taking into account the legal position that KSFC cannot claim depreciation on the portion of the cost of the capital goods representing CV duty when the appellants have informed them of their decision to take Modvat credit, we allow the appeal with consequential relief.
(Operative portion of the order has been pronounced in the open court on completion of hearing on 10.1.2006)