Modvat credit on capital goods cannot be denied unless depreciation was actually claimed on the same duty element.

Modvat credit on capital goods could not be denied merely because income-tax depreciation had been claimed elsewhere; denial is justified only when depreciation is actually claimed and allowed on the same excise duty element, creating a double benefit. The assessee produced revised income-tax returns, depreciation statements, and certificates from the jurisdictional income-tax authority showing that depreciation was claimed only after excluding the Modvat portion, and one assessment order had attained finality. On that material, the possibility of pending assessment proceedings did not support an inference that depreciation covered the disputed duty amount. The assessee was therefore not disentitled to Modvat credit.

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Issues: Whether the assessee was disentitled to Modvat credit on capital goods on the ground that depreciation had been claimed for income-tax purposes on the duty element.

Analysis: The appellant produced revised income-tax returns, the depreciation statements forming part of those returns, and certificates from the jurisdictional income-tax authority showing that depreciation had been claimed only after excluding the Modvat element. For one assessment year, an assessment order was also produced and had attained finality. The documentary material showed that the depreciation claimed did not include the excise duty portion represented by Modvat credit. In these circumstances, the mere possibility that assessment proceedings were pending could not justify an inference that depreciation had been allowed on the disputed amount. The legal basis for denial of credit arises only where depreciation is actually claimed and allowed on the same duty element, so as to prevent double benefit.

Conclusion: The assessee had not claimed depreciation on the Modvat portion of the capital goods, and denial of Modvat credit was therefore unsustainable.

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