Modvat credit and depreciation claims: credit survives where no depreciation was claimed on the duty element of capital goods.

Modvat credit on capital goods is inadmissible only where depreciation under section 32 of the Income-tax Act has been claimed on the duty element of those goods. The Tribunal, on the factual record and income-tax assessment orders, found that no depreciation had been claimed on the Modvat portion for the relevant period, so the credit claim was not barred under Rule 57R(8) of the Central Excise Rules, 1944. A revised income-tax return was held not to compel denial of credit, and the plea to read down the rule was rejected. The assessee's entitlement to credit was therefore sustained.

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Issues: Whether Modvat credit on capital goods was inadmissible because depreciation had been claimed under the Income-tax Act, and whether a revised income-tax return could defeat the credit claim under the Central Excise Rules.

Analysis: The Tribunal had examined the factual matrix, including the income-tax assessment orders, and found that the assessee had not claimed depreciation on the Modvat portion of the capital goods for the relevant period. The challenge rested on Rule 57R(8) of the Central Excise Rules, 1944, which bars credit where depreciation under section 32 of the Income-tax Act, 1961 is claimed on the duty element of capital goods. The Court found no error in the Tribunal's approach and rejected the contention that a revised return and its assessment should have compelled denial of credit. The plea to read down the rule was also rejected in light of the Tribunal's reasoning.

Conclusion: The denial of credit was not made out, and the Tribunal's order allowing the assessee's appeal was upheld.

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