Court allows Cenvat credit on capital goods despite depreciation claim

The court ruled in favor of the appellant, allowing the Cenvat credit on capital goods. The judge found that the appellant was entitled to the credit despite claiming both Cenvat credit and depreciation, as they reversed the depreciation claimed on duty paid capital goods in a subsequent financial year. The court also deemed the penalty unsustainable due to the lack of specificity in the show cause notice, leading to it being set aside. The appeal was allowed with any consequential relief.

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Issues:
Appeal against denial of Cenvat credit on capital goods.

Analysis:
The appellant appealed against the denial of Cenvat credit on capital goods, as they had availed 50% of the credit during 2008-09 and also claimed depreciation under Section 32 of the Income Tax Act, 1961. The Revenue contended that since the appellant claimed both Cenvat credit and depreciation, they were not entitled to the credit. The appellant reversed the depreciation claimed on duty paid capital goods in the subsequent financial year, informed the Income Tax Department, and obtained a certificate from a Chartered Accountant confirming no depreciation claimed on duty paid capital goods. Despite this, a show cause notice was issued invoking an extended period of limitation, leading to the denial of Cenvat credit and imposition of a penalty. The appellant challenged this decision.

The appellant's counsel cited precedents like Prasad Machinery Pvt. Ltd. and Jay Precision Products India Pvt. Ltd., arguing that the appellant should be allowed the Cenvat credit. On the other hand, the Revenue's counsel referred to the decision in Yee Kay Technocrat (P) Ltd. to support the denial of credit. After hearing both sides, the judge analyzed the facts and the legal precedents. The judge found that the facts in the case were similar to those in Prasad Machinery Pvt. Ltd. and Yee Kay Technocrat (P) Ltd. The judge noted that previous decisions allowed Cenvat credit if depreciation was foregone after Revenue's intervention. Consequently, the judge ruled in favor of the appellant, allowing the Cenvat credit and declaring the demand with interest unsustainable.

Regarding the penalty, the judge noted that the show cause notice invoked an extended period of limitation based on alleged suppression of facts during an audit. However, as the audit date was not specified, the judge deemed the notice unsustainable. Consequently, the penalty on the appellant was deemed not imposable. The impugned order was set aside, and the appeal was allowed with any consequential relief.

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