Retrospective amendment removed the basis for denying MODVAT credit on capital goods treated as revenue in books.

MODVAT credit on capital goods could not be denied merely because their value was shown as revenue expenditure in the books, where the Chartered Accountant's certificate showed no depreciation was claimed under the Income-tax Act and no revenue deduction was taken for tax purposes. The earlier restriction under Rule 57R(5) and Rule 57R(8) was retrospectively modified by the Finance Act, 2003, removing the legal basis for denial of credit. The subject was also consistent with prior Tribunal rulings on the effect of the retrospective amendment, and the assessee was entitled to the credit.

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Issues: Whether MODVAT credit on capital goods could be denied merely because their value was treated as revenue expenditure in the books of account, in view of the retrospective amendment to the relevant rules.

Analysis: The certificate of the Chartered Accountant showed that no depreciation had been claimed under the Income-tax Act, 1961 and that the amount was not claimed as revenue expenditure under income-tax provisions. The earlier restriction contained in Rule 57R(5) and Rule 57R(8) stood retrospectively modified by the Finance Act, 2003, and the legal basis on which credit had been denied was removed. The controversy was already covered by earlier Tribunal decisions taking the same view on the effect of the retrospective amendment.

Conclusion: The denial of MODVAT credit could not be sustained, and the assessee was entitled to the credit.

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