Cenvat credit on capital goods cannot be compelled when depreciation is claimed under income-tax law; stay granted.

An assessee who reversed MODVAT/Cenvat credit on capital goods before utilisation, in order to claim depreciation under the income-tax law, could not be compelled to avail the credit. The Tribunal treated the assessee's option to forgo credit and claim depreciation as consistent with the Modvat/Cenvat scheme and found the revenue's insistence on compulsory availment not prima facie sustainable. On that basis, the stay petition was allowed unconditionally.

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Issues: Whether the assessee could be compelled to avail Cenvat credit on capital goods when depreciation had been claimed under the income-tax law, and whether stay on demand deserved to be granted unconditionally.

Analysis: The assessee had reversed the initial MODVAT credit on capital goods before its utilisation, as depreciation was intended to be claimed under the income-tax law. The dispute turned on whether the assessee had an option either to take Cenvat credit or to forgo it and claim depreciation, and whether the revenue could insist on compulsory availment of credit to deny the refund mechanism. The Tribunal held that the assessee could not be forced to avail credit on capital goods in respect of which depreciation had been claimed, and that the revenue's stand was not prima facie sustainable.

Conclusion: The issue was decided in favour of the assessee, and the stay petition was allowed unconditionally.

Ratio Decidendi: An assessee cannot be compelled to avail Cenvat credit on capital goods where depreciation under the income-tax law has been claimed, and such compulsory availment is prima facie contrary to the Modvat/Cenvat credit scheme.

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