Depreciation on duty component bars capital goods credit, and wrong notice citation does not void proceedings.

Credit on capital goods was treated as inadmissible where depreciation had been claimed on the duty component under the Income-tax Act, and the assessee could not displace that statutory bar by relying on accounting treatment. A citation error in the show cause notice did not invalidate the proceedings because the substantive power could still be traced to a valid and cognate provision. The challenge based on natural justice also failed, as the re-adjudicating authority had considered the statement, financial records and chartered accountant's certificate and had granted personal hearing. Once inadmissible credit was established, interest and penalty were upheld as consequential liabilities for wrongful availment and misdeclaration.

---

---

Issues: (i) Whether the impugned order suffered from violation of natural justice for want of proper consideration of the statement and chartered accountant's certificate. (ii) Whether credit was inadmissible because the assessee had claimed depreciation under section 32 of the Income-tax Act on the duty component of the capital goods, and whether the reference to a wrong sub-rule or wrong provision in the show cause notice invalidated the proceedings. (iii) Whether interest and penalty were sustainable on the inadmissible credit.

Issue (i): Whether the impugned order suffered from violation of natural justice for want of proper consideration of the statement and chartered accountant's certificate.

Analysis: The remand direction required consideration of the statement in its entirety and the chartered accountant's certificate. The re-adjudicating authority recorded consideration of the statement, balance sheets and profit and loss accounts, and also granted personal hearing. The challenge based on denial of opportunity therefore did not survive on the facts recorded.

Conclusion: The plea of violation of natural justice was rejected.

Issue (ii): Whether credit was inadmissible because the assessee had claimed depreciation under section 32 of the Income-tax Act on the duty component of the capital goods, and whether the reference to a wrong sub-rule or wrong provision in the show cause notice invalidated the proceedings.

Analysis: The relevant rule barred credit where depreciation was claimed on the portion of the value of capital goods representing specified duty. The Tribunal found, on the assessee's own statement and the income-tax material, that depreciation had in fact been claimed and allowed. The accounting treatment relied upon by the assessee did not override the statutory prohibition. The Tribunal also held that the later sub-rule and the earlier sub-rule were in pari materia, and that citation of a wrong provision or sub-rule did not by itself vitiate the proceedings when the power could be traced to a valid source.

Conclusion: The credit was held to be inadmissible and the objection based on wrong citation was rejected.

Issue (iii): Whether interest and penalty were sustainable on the inadmissible credit.

Analysis: Once inadmissible credit was found to have been taken, interest followed as a compensatory liability for wrongful withholding of government dues. The Tribunal further held that misdeclaration and wrongful availment of credit justified penalty under the applicable excise penalty provision.

Conclusion: The levy of interest and penalty was upheld.

Final Conclusion: The appeal failed in entirety and the demand, interest and penalty confirmed in the impugned order were sustained.

Ratio Decidendi: Where a statute prohibits credit if depreciation has been claimed on the duty component of capital goods, the assessee cannot escape the bar by relying on accounting entries or by showing that the notice cited an incorrect but cognate provision; once inadmissible credit is established, interest and penalty may follow according to the statute.

---