Depreciation on unavailed Cenvat credit portion is permissible where only part of capital goods duty is taken as credit.

Depreciation under the Income-tax Act was held permissible on the portion of duty paid on capital goods for which Cenvat credit was not availed, because Rule 4(4) of the Cenvat Credit Rules, 2002 bars depreciation only to the extent the value of the capital goods is actually included for depreciation. Rule 4(2)(a) allows only 50% credit in the year of receipt, with the balance available later, and there is no prohibition against claiming depreciation on the unavailed portion in the relevant year. The earlier Rule 57AC(4) was treated as having the same effect, so the demand was unsustainable and the assessee's claim succeeded.

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Issues: Whether depreciation under the income-tax law could be claimed on the portion of duty paid on capital goods for which Cenvat credit was not availed, and whether such claim was barred by the Cenvat Credit Rules, 2002.

Analysis: Rule 4(2)(a) of the Cenvat Credit Rules, 2002 permits only 50% of the duty paid on capital goods to be taken as credit in the year of receipt, with the balance being available in subsequent financial years. Rule 4(4) bars credit only in respect of that part of the value of the capital goods which is included for claiming depreciation under Section 32 of the Income-tax Act, 1961. On that scheme, there is no prohibition against claiming depreciation on the portion of duty for which credit has not been taken in the relevant year. The earlier rule under Rule 57AC(4) of the Central Excise Rules, 1944 was treated as having the same effect.

Conclusion: The claim of depreciation on the unavailed portion of Cenvat credit was permissible, and the demand was not sustainable. The appeal was therefore decided in favour of the assessee.

Ratio Decidendi: Where only a part of the admissible Cenvat credit on capital goods is availed, depreciation may validly be claimed on the remaining unavailed portion, because the bar under the credit rules applies only to the portion of value actually included for depreciation.

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