Modvat credit penalty for misdeclared depreciation claim upheld, with reduction after partial withdrawal of depreciation in assessment orders.

Irregular availment of Modvat credit on capital goods can attract penalty where the assessee's declaration that no depreciation would be claimed under the Income-tax Act is not honoured. On the facts, revised income-tax assessment orders showed withdrawal of depreciation only to a limited extent, and there was no evidence of withdrawal for the balance; this supported a finding that part of the credit was irregularly taken and that the declaration under Rule 57T was misdeclared. The Tribunal decisions cited by the assessee were distinguished on their facts, including one that was only a remand. Penalty was therefore held imposable under Rule 57U(6) and Rule 173Q(1)(bb), but was reduced to Rs. 40,000.

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Issues: Whether penalty was sustainable for irregular availment of Modvat credit on capital goods where the assessee had declared that no depreciation would be claimed under the Income-tax Act, but had in fact claimed depreciation and later withdrew part of it by revised assessment orders.

Analysis: The available revised income-tax assessment orders established withdrawal of depreciation only to a limited extent. For the balance, there was no evidence of withdrawal. The record therefore supported a finding that part of the Modvat credit had been irregularly taken. The declaration under Rule 57T was not honoured, and the contemporaneous claim of depreciation showed a mis-declaration with intent relevant to penalty. The reliance placed on the cited Tribunal decisions did not assist the assessee on the facts, since one case involved materially different facts and the other was only a remand without a decision on merits.

Conclusion: Penalty was held to be imposable under Rule 57U(6) and Rule 173Q(1)(bb) of the Central Excise Rules, 1944, but it was reduced to Rs. 40,000.

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