Lessee cannot claim CENVAT credit on capital goods on which lessor has availed depreciation U/s. 32 of Income Tax Act, 1961

lessor M/s Gujarat Gas Co. Ltd. has availed depreciation under Section 32 of the Income Tax Act, 1961, therefore, the appellant-lessee cannot claim the CENVAT credit on the same capital goods

Lessee cannot claim CENVAT credit on capital goods on which lessor  has availed depreciation U/s. 32 of Income Tax Act, 1961

Briefly stated the facts of the case are that the appellants are engaged in the manufacture of excisable goods, namely paper and paperboard falling Chapter Heading 48 of the Central Excise Tariff Act, 1985. They have availed CENVAT credit of Rs.39,50,149/- on capital goods, procured on lease basis from one M/s B.G. India Energy Services Pvt. Ltd under agreement dated 28.2.2006. Alleging that the lessor had availed the benefit of depreciation under Section 32 of the Income Tax Act, 1961, and credit being not admissible to the Appellant, it was proposed to be recovered by issuance of show cause notice on 14.3.2012 with proposal for imposition of penalty. On adjudication, the demand was confirmed with interest and equal amount of penalty. Aggrieved by the said order, the appellant filed appeal before the ld. Commissioner (Appeals), who in turn, rejected their appeal. Hence, the present appeal.

The ld. Advocate for the appellants submitted that on a query by the department, on the issue of availability of credit on the capital goods procured on lease basis, the Appellant through their letter dated 30.6.2008 informed that the lessor M/s Gujarat Gas Co. Ltd have availed depreciation under Section 32 of the Income Tax Act, 1961 on the entire value of the capital goods including the amount of central excise duty paid thereof. Further, it was submitted that on a plain reading of the relevant provision, that is, sub-Rule (4) of Rule 4 of CENVAT Credit Rules, 2004, it appears that the depreciation was availed by the lessor of the capital goods and since the lessor is neither a service provider nor manufacturer, hence, there should be no restriction on availing CENVAT credit of duty paid on the capital goods in the hands of the Appellant. He submitted that in view of judgment of the Tribunal in the case of Surendra Industries (I) (P) Ltd. vs. C.C.E., Bangalore -2006 (198) ELT 397 (Tri-Bang.), later upheld by the Honble Karnataka High Court, the CENVAT credit would be admissible to the lessee-Appellant, even though the lessor had availed depreciation on the capital goods under Section 32 of the Income Tax Act, 1961. Further, he has submitted that since all the facts were within the knowledge of the department, being communicated by them through letter 30.06.2008, hence the demand issued on 14.03.2012 for recovery of the credit availed in 2008 is barred by limitation.

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