The respondent can reverse the CENVAT credit availed on capital goods treating it as undesirable credit to claim depreciation under Section 32 of the Income Tax Act, 1962, and pay duty from PLA otherwise payable after exhausting CENVAT Credit balance thereby claiming refund of the same under Notification No.39/2001-CE dated 31.07.2001.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 1815 of 2009
Commissioner of Central Excise and Customs – Appellant(s)
Genus Electrotech Limited – Opponent(s)
MR YN RAVANI for Appellant(s): 1,
None for Opponent(s) : 1,
CORAM: HONOURABLE MR. JUSTICE D.A.MEHTA and HONOURABLE MS. JUSTICE HARSHA DEVANI
O R D E R
(Per: HONORABLE MS. JUSTICE HARSHA DEVANI)
1. In this appeal under section 35G of the Central Excise Act, 1944, the appellant revenue has challenged order dated 18th March, 2009 made by the Customs, Excise and Service Tax Appellate Tribunal proposing the following questions:
Whether the respondent can reverse the CENVAT credit availed on capital goods treating it as undesirable credit to claim depreciation under Section 32 of the Income Tax Act, 1962, and pay duty from PLA otherwise payable after exhausting CENVAT Credit balance thereby claiming refund of the same under Notification No.39/2001-CE dated 31.07.2001?
Whether the option to avail CENVAT Credit or claim depreciation under Section 32 of Income Tax Act, 1962 is a one time option or the assessee can choose to opt out of option once exercised?
Whether in a situation where benefit of an exemption notification is being availed in which mandatory condition to avail the substantive benefit is the utilization of the CENVAT Credit, can assessee at his will opt out midway to avail the benefit under Income Tax Act, 1962, thus rendering mandatory condition of exemption notification inapplicable?
Whether tribunal erred in not following its own decision, in the case of M/s Pranam Industries Ltd. In Appeal No. E/3758/05?
2. The respondent, at the relevant time was a new industrial unit, engaged in the manufacture of excisable goods. The respondent’s unit was set up in Kutch District after 31st July, 2001 with original value of investment of Rs. 26,80,06,507/- in plant and machinery and was availing the benefit of notification No.39/2001-CE dated 31.07.2001 (hereinafter referred to as the “subject notification”). The assessee commenced commercial production on 14th January, 2005. During the course of audit it was noted that the respondent had started taking credit of duty paid on capital goods installed in its factory viz., plant and machinery from 08th July, 2004 in its capital goods CENVAT account (R.G. 23-C PT.II). It was also noticed that the balance of credit reflected in the E.R.-1 return filed by it for the month of December, 2004 was to the tune of Rs. 2,68,08,644/-, however, the assessee on its own had debited the said amount on 21st January, 2005 in its R.G.-23-C Part II register and accordingly, had shown nil balance of CENVAT credit in the E.R.-1 return filed for the month of January, 2005. According to the Department, the assessee had violated the provisions of the subject notification as the assessee was required to first utilise the entire available CENVAT credit towards payment of central excise duty and it was only if there was no balance in its CENVAT credit account, that the assessee could pay duty from PLA in the respective month and claim refund of the duty paid from PLA. Hence, the CENVAT credit balance of Rs. 2,68,08,644/- should have been utilised by the assessee in accordance with the provisions of the subject notification. Show cause notice came to be issued to the assessee on the ground that the assessee had violated the provisions of the subject notification; that the CENVAT credit balance of Rs. 2,68,08,644/- should have been utilised by the assessee in accordance with the provisions of the said notification whereas the assessee had claimed excess refund under the said notification to the tune of Rs. 2,68,08,644/- being unutilised balance in its CENVAT credit account as on 31st December, 2004. The show-cause notice came to be adjudicated vide order dated 27th December, 2007 whereby demand of Rs. 2,68,08,644/- came to be confirmed under section 11A of the Act alongwith interest at the appropriate rate. The assessee carried the matter in appeal before Commissioner (Appeals) but did not succeed. However, the assessee succeeded in second appeal before the Tribunal.
3. Mr. Y.N. Ravani, learned senior standing counsel for the appellant vehemently assailed the impugned order of the Tribunal submitting that once the assessee had taken credit of duty paid on capital goods, the assessee was required to utilise the same for payment of duty and could not have paid the duty from PLA. It was not permissible for the respondent to reverse credit of duty once taken and that the respondent was required to utilise the amount credited as shown in the E.R.-1 return filed in December, 2004 for payment of duty. That the respondent having violated the provisions of the subject notification by making payment of duty from PLA instead of utilizing the credit taken for payment of duty, the duty demand had rightly been confirmed. According to the learned counsel the sole intention behind the reversal of the credit already taken was to pay excise duty from PLA and claim refund of the same under the subject notification, and that to camouflage the said intention the respondent had raised the issue of claiming depreciation under section 32 of the Income Tax Act, 1961.
4. The facts as appearing from the record indicate that the respondent assessee in its CENVAT account for capital goods entered capital goods purchased by it from time to time for setting up the unit including details of duty paid on capital goods. In the monthly E.R.-1 return for December, 2004 filed on 10th January, 2005, the assessee had shown capital goods credit at Rs. 2,68,08,644/-. The unit started commercial production on 14th January, 2005. The assessee decided to forego the credit available on the capital goods as it intended to avail depreciation under section 32 of the Income Tax Act, 1961 on the value of capital goods which represented excise duty. The assessee, therefore, reversed the credit on 31st January, 2005 in its monthly return for the month of January, 2005 and showed the credit balance of capital goods as nil and paid the central excise duty on goods cleared by it from PLA. According to the revenue, the credit once taken in the CENVAT account could not have been reversed and the same should have been utilized in terms of the subject notification for payment of excise duty. The case of the respondent was that it wanted to avail of depreciation under the provisions of section 32 of the Income Tax Act, 1961 on the total value of the capital goods, including the excise duty component, and as such had reversed the CENVAT credit before it had commenced utilizing the same.
5. The Tribunal upon appreciation of the evidence on record has found that the assessee had taken CENVAT credit up to December, 2004 and in January, 2005 it had reversed the full amount of CENVAT credit and had opted to claim depreciation under section 32 of the Income Tax Act, 1961. The Tribunal has further noted that at the time when the unit started clearances, there was no CENVAT credit available in its account and that the decision to claim depreciation instead of CENVAT credit, as well as reversal of CENVAT credit had been taken before the assessee started clearance of goods from its factory. Thus, it is an admitted position that though the assessee had taken the credit in the CENVAT account, it had not utilised the same.
6. Thus, the controversy that arises for determination is as to whether it was permissible for the respondent assessee to reverse the CENVAT credit taken in its CENVAT account without utilizing the same in terms of the subject notification.
7. From the facts noted herein above, it is apparent that the assessee had taken CENVAT credit on the capital goods till December, 2004, however, as the assessee wanted to avail of the benefit of depreciation under section 32 of the Income Tax Act, 1961 even in respect of the central excise duty component, before utilizing the credit it reversed the same, consequently the opening balance in the month of January, 2005 was Nil. The assessee commenced commercial production on 14th January, 2005 and paid the excise duty on clearances made by it from PLA. According to the respondents, credit once having been taken, it was not permissible for the assessee to reverse the same and that the credit taken had to be utilized in accordance with the subject notification.
8. In this regard, it may be germane to refer to the decision of the the Supreme Court in the case of Commissioner of C.Ex., Mumbai-I vs. Bombay Dyeing & Mfg. Co. Ltd., 2007 (215) E.L.T. 3 (S.C.), wherein the court was dealing with a case where the assessee had reversed the CENVAT credit availed by it earlier and had claimed benefit of exemption under notification No.14/2002-C.E. Under the said notification the requirement was that exemption on grey fabrics was admissible subject to the assessee not paying duty on yarn before claiming exemption and subject to the assessee not claiming CENVAT credit before claiming exemption. The Court held that when the entry was reversed before utilization, the same amounted to not taking credit and held that the unit satisfied both the conditions of the notification.
9. The aforesaid decision of the Supreme Court would be squarely applicable to the facts of the present case, inasmuch as, in the present case also, the assessee, before utilization of the credit taken by it had reversed the entry. Thus, as laid down in the aforesaid decision, reversal of credit before utilization amounts to not taking credit and as such it cannot be said that the assessee had violated the provisions of the subject notification. In the circumstances, the Tribunal was justified in holding that when the clearances started from the assessee’s unit there was no CENVAT credit available in its account and that there was nothing wrong in taking a decision to claim depreciation instead of CENVAT credit and reversing the same before it started clearance of goods from its factory, and as such the refund had rightly been sanctioned.
10. For the foregoing reasons, there being no infirmity in the impugned order of the Tribunal, the same does not give rise to any question of law, as proposed or otherwise, much less, a substantial question of law, so as to warrant interference. The appeal is, accordingly, dismissed.