Penalty for Modvat-linked depreciation claim set aside after revised returns withdrew the disputed income-tax depreciation claim.

Penalty under Rule 173Q for contravention of Rule 57R(8) was held unsustainable where the assessee had initially claimed depreciation on Modvat credit under the Income-tax Act but later filed revised returns withdrawing that claim. The record showed the depreciation claim had been given up before the income-tax authorities, so the factual basis for treating the earlier omission as a continuing contravention no longer survived. On that footing, the penalty could not be sustained and was set aside in favour of the assessee.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable for contravention of Rule 57R(8) of the Central Excise Rules, 1944 where the assessee had claimed depreciation under Section 32 of the Income-tax Act, 1961 and later filed revised income-tax returns to withdraw that claim.

Analysis: The assessee had initially claimed depreciation on the amount of Modvat credit in its income-tax returns, which attracted the restriction contained in Rule 57R(8). However, the revised returns were filed to correct that mistake, and the record showed that the depreciation claim had been given up before the Income-tax authorities. In those circumstances, the basis for sustaining a penalty for the earlier contravention no longer survived.

Conclusion: The penalty under Rule 173Q was not sustainable and was set aside in favour of the assessee.

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