Depreciation for transferred capital goods must follow Board circular rates and stay within the 70% valuation ceiling.

Depreciation for valuation of old capital goods transferred between units was required to follow the Board's circulars adopting Customs-side rates for Central Excise valuation, rather than Schedule XIV to the Companies Act, 1956. The prescribed method operated subject to an overall 70% ceiling, so depreciation could not exceed that limit. The assessee's attempt to apply a different valuation basis was not accepted, and the demand founded on restriction of depreciation to 70% was sustained.

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Issues: Whether the depreciation for valuation of old capital goods removed from one unit to another was to be computed under Schedule XIV to the Companies Act, 1956 or under the Board's circulars, and whether the depreciation could exceed the 70% ceiling prescribed by the Board.

Analysis: The depreciation claimed by the assessee was based on Schedule XIV to the Companies Act, 1956, while the Revenue relied on the Central Excise circular which referred to the rates prescribed in the Customs circular for valuation of second-hand machinery. The Board's clarification stated that adequate depreciation in respect of capital goods was to be given as per the rates fixed in the Customs letter dated 26-5-1993. Both circulars were issued by CBEC, and the Board's authority to adopt the Customs-side depreciation rates for Central Excise valuation was not in dispute. The prescribed schedule allowed depreciation subject to an overall ceiling of 70%.

Conclusion: The depreciation allowable for the subject machinery could not exceed 70%, and the assessee's contrary method based on Schedule XIV to the Companies Act, 1956 was not accepted.

Final Conclusion: The duty demand based on restricting depreciation to 70% was upheld, and the appeal failed.

Ratio Decidendi: Where the Board's circular expressly adopts the depreciation rates fixed on the Customs side for Central Excise valuation of capital goods, those prescribed rates govern and the depreciation cannot exceed the stipulated ceiling.

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