Cenvat credit and depreciation on the same duty component cannot be claimed together; penalty sustained, interest deleted.
Cenvat credit on capital goods was held inadmissible where depreciation had also been claimed on the duty component in income tax returns, because Rule 4(4) of the Cenvat Credit Rules, 2004 bars simultaneous benefit on the same element. A revised income tax return did not cure the original ineligibility, so the wrong availment remained established. Interest was not sustainable once the credit demand itself had been dropped and no recoverable amount survived. Penalty for wrongful availment of credit was sustained because the contravention of the Cenvat scheme was treated as substantive, justifying action under Rule 15(2) read with Section 11AC.
Issues: (i) whether Cenvat credit on capital goods was admissible when depreciation had been claimed on the duty component in income tax returns, (ii) whether interest was payable when the credit demand itself had been dropped, and (iii) whether penalty for wrong availment of credit was sustainable.
Issue (i): whether Cenvat credit on capital goods was admissible when depreciation had been claimed on the duty component in income tax returns
Analysis: Rule 4(4) of the Cenvat Credit Rules, 2004 prohibits simultaneous availment of Cenvat credit and depreciation on the duty element of the same capital goods. The subsequent filing of a revised income tax return did not cure the original ineligibility, and the wrong availment of credit remained established on the facts.
Conclusion: The credit was not admissible; the issue was decided against the assessee.
Issue (ii): whether interest was payable when the credit demand itself had been dropped
Analysis: Interest is consequential to an enforceable demand. Since the demand had been dropped and no surviving recovery amount remained, there was no basis for levying interest on a nil demand.
Conclusion: Interest was set aside; the issue was decided in favour of the assessee.
Issue (iii): whether penalty for wrong availment of credit was sustainable
Analysis: The wrong availment of credit on capital goods, while simultaneously claiming depreciation, constituted a contravention of the Cenvat scheme. The irregularity was not treated as a mere clerical lapse, and the mandatory requirements of Rule 4(4) were held to have been violated, justifying penal action under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944.
Conclusion: The penalty was upheld; the issue was decided against the assessee.
Final Conclusion: The order was modified only to the extent of deleting the interest, while the penalty for wrongful availment of credit was sustained.
Ratio Decidendi: A manufacturer cannot simultaneously claim Cenvat credit on capital goods and depreciation on the duty component of those goods, and where the credit is wrongly taken, penalty may be sustained even if the recovery demand does not survive.