Leased capital goods credit cannot be denied where the lessor is not a financing company and the procedural rule does not apply.

Credit on capital goods taken on lease was held admissible because the restriction in Rule 57R(3)(ii)(b) applied only where the lessor was a financing company. The supplier acted merely as lessor under the lease arrangement and could not be treated as a financing company simply because it financed the purchase of the goods. As the specific procedural condition was inapplicable, denial of credit had no basis. Once the credit was found allowable, the accompanying penalty also could not survive.

---

---

Issues: Whether credit on capital goods taken on lease could be denied for non-compliance with Rule 57R(3)(ii)(b) when the supplier of the goods was not a financing company, and whether the penalty imposed could survive.

Analysis: The credit scheme permitted capital goods taken on lease or rental, and the procedural restriction in Rule 57R(3)(ii)(b) applied only where the lessor fell within the category of a financing company. On the facts, the supplier acted only as lessor under the agreement and could not be treated as a financing company merely because it had financed the purchase of the leased goods. Since the specific procedural stipulation was inapplicable, the denial of credit lacked basis. Once credit was held admissible, the penalty also could not stand.

Conclusion: The denial of credit was unjustified and the penalty was unsustainable, in favour of the assessee.

---