Cenvat credit on capital goods depends on whether depreciation was actually claimed on the same duty element, requiring proper verification.

Cenvat credit on the excise duty element of capital goods is inadmissible if depreciation has actually been claimed on the same amount under section 32 of the Income-tax Act, 1961. The controlling issue here was factual verification: whether depreciation had in fact been claimed, and whether the assessee's later explanation, audited accounts and Chartered Accountant's certificate were properly examined. The record showed that the lower authorities relied on initial material without adequately testing the subsequent documentary evidence, leaving the factual contradiction unresolved. The matter therefore required fresh adjudication after proper verification of the accounts and supporting records.

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Issues: Whether the denial of Cenvat credit on capital goods was sustainable where the controversy turned on whether depreciation under section 32 of the Income-tax Act, 1961 had actually been claimed on the excise duty component and whether the factual material was properly verified.

Analysis: The legal position was not in dispute: Cenvat credit is not admissible on the excise duty element of capital goods if depreciation has been claimed on that same amount under section 32 of the Income-tax Act, 1961. The dispute was factual, namely whether the assessee had in fact claimed depreciation on the portion of duty for which credit was taken. The denial had been upheld mainly on the basis of an initial statement and the data initially supplied. The assessee subsequently produced audited accounts and a Chartered Accountant's certificate and asserted that the entire Cenvat amount had been reversed from the capital account at the time of capitalisation. The record showed that the lower authorities did not properly verify the later explanation and documentary evidence, and the contradiction between the assessee's stand and the earlier material remained unresolved on a proper factual inquiry.

Conclusion: The matter required fresh consideration by the adjudicating authority, and the denial could not be sustained on the existing verification.

Final Conclusion: The impugned order was set aside and the matter was sent back for de novo adjudication after affording the assessee an opportunity of hearing.

Ratio Decidendi: Where admissibility of Cenvat credit depends on whether depreciation was actually claimed on the same duty element, the factual issue must be determined on proper verification of the accounts and supporting evidence before credit can be denied.

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