Cenvat credit and depreciation overlap must be tested against income-tax records before credit is denied.

Cenvat credit could not be denied solely on the premise of simultaneous depreciation on capital goods where the income-tax assessment record showed that the Cenvat value had been excluded from taxable income computation. The earlier factual basis for denial therefore no longer survived. The credit disallowance and penalty were set aside, and the matter was remanded to the original authority to re-examine the claim in light of the assessment order and to decide afresh after granting a reasonable opportunity of hearing.

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Issues: Whether capital goods credit could be denied on the ground that depreciation had been claimed for income-tax purposes, and whether the matter required remand for reconsideration in light of the income-tax assessment order.

Analysis: The denial of Cenvat credit and the penalty were based on the premise that the assessee had simultaneously claimed depreciation on the value of the capital goods. A subsequent income-tax assessment order showed that the Cenvat value had been deducted from the computation of taxable income, which indicated that there was no subsisting simultaneous availment of depreciation and credit. The proper course was for the original authority to examine that assessment order and reconsider the credit claim on the basis of the corrected factual position, after giving a reasonable opportunity of hearing.

Conclusion: The orders denying credit and imposing penalty were set aside and the matter was remanded to the original authority for fresh decision in accordance with law.

Ratio Decidendi: Where the factual basis for denial of credit on the ground of simultaneous depreciation no longer survives, the adjudicating authority must reconsider the claim on the basis of the income-tax record and afford a fair hearing before deciding afresh.

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