Cenvat credit and depreciation under Rule 4(4): coordinate Bench disagreement required reference to a larger Bench

Rule 4 of the Cenvat Credit Rules, 2001/2002 permits 50% credit on capital goods in the year of receipt and the balance in a later year, but Rule 4(4) bars credit on the value component for which depreciation has been claimed under Section 32 of the Income-tax Act, 1961. The order records that the earlier Division Bench view, which treated depreciation on the non-credit portion as unobjectionable, appeared inconsistent with the text of Rule 4(4). It further states that, on judicial discipline, a coordinate Bench cannot disregard an earlier decision even if considered incorrect; the proper course is reference to a larger Bench for reconsideration.

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Issues: Whether Rule 4 of the Cenvat Credit Rules, 2001 and the Cenvat Credit Rules, 2002 permits availment of balance Cenvat credit on capital goods where depreciation under Section 32 of the Income-tax Act, 1961 has been claimed on the same duty amount, and whether the earlier Division Bench view required reconsideration.

Analysis: Rule 4 permits 50% Cenvat credit in the year of receipt of capital goods and the balance in a subsequent year, but sub-rule (4) bars credit on the part of the value of capital goods for which depreciation has been claimed. The order records a disagreement with the earlier Division Bench view that no violation arose when depreciation was claimed only on the portion of duty not taken as credit, and states that the earlier decision appears inconsistent with the text of Rule 4(4). While judicial discipline required following the coordinate Bench decision, the proper course where the Bench found it incorrect was to refer the matter to a larger Bench.

Conclusion: The issue was not finally decided on merits by the present order and was directed to be placed before a larger Bench for reconsideration of the earlier view.

Final Conclusion: The appeal was not disposed of by a merits determination on entitlement to credit, and the controversy was referred for authoritative reconsideration by a larger Bench.

Ratio Decidendi: Where a coordinate Bench view is considered incorrect, judicial discipline requires reference to a larger Bench rather than disregard of the earlier decision; and Rule 4(4) is the controlling provision on denial of credit where depreciation is claimed on the same duty component.

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