Modvat credit and depreciation on the same capital goods cannot be claimed together; suppression supports recovery and penalty.

Modvat credit on capital goods was not available where the manufacturer had also claimed depreciation under section 32 of the Income-tax Act on the same goods, because Rule 57R(8) barred dual benefit to that extent. Although the assessee had filed declarations undertaking not to claim depreciation, the income-tax return showed depreciation was in fact claimed during the relevant period while Modvat credit was simultaneously taken. The later rectification did not change the position for that period, and the inconsistent declaration supported findings of suppression and misdeclaration. Recovery of the credit, together with interest and penalty, was therefore justified.

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Issues: Whether Modvat credit on capital goods was admissible when the manufacturer had claimed depreciation under the Income-tax Act on the same capital goods, and whether the consequential demand of interest and penalties was sustainable.

Analysis: Rule 57R(8) of the Central Excise Rules, 1944 barred credit on capital goods to the extent depreciation was claimed under section 32 of the Income-tax Act, 1961. The assessee had filed declarations undertaking not to claim depreciation, yet depreciation was claimed in the income-tax return for the relevant year while Modvat credit was also availed. The later income-tax proceedings did not alter the fact that, during the relevant period, both benefits had been simultaneously claimed. The record also established that the department detected the issue before the rectification attempt, and the declarations on record were inconsistent with the actual tax position. In these circumstances, the assessee could not retain the credit, and the findings of suppression and misdeclaration justified recovery, interest, and penalty.

Conclusion: The credit was inadmissible, and the demand of duty, interest, and penalties was upheld.

Ratio Decidendi: A manufacturer who has claimed depreciation under section 32 of the Income-tax Act, 1961 on the same capital goods cannot simultaneously avail Modvat credit under Rule 57R(8) of the Central Excise Rules, 1944, and a false declaration to the contrary amounts to suppression justifying recovery and penalty.

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