High Court affirms CESTAT decision on Modvat credit for capital goods, emphasizing factual verification and legal principles

COMMISSIONER OF C. EX. & CUS., SURAT-II Versus NISH FIBRES

COMMISSIONER OF C. EX. & CUS., SURAT-II Versus NISH FIBRES - 2010 (257) E.L.T. 81 (Guj.) Issues:
1. Admissibility of Modvat credit under Rule 57R(8) of Central Excise Rules, 1944.
2. Application of decisions in Alcobex Metals Ltd. v/s. Commissioner of C.Ex., Jaipur-II and Narayan Krishna Spinners Ltd. v/s. Commissioner of C.Ex. Coimbatore.
3. Claim of depreciation on capital goods and its impact on Modvat credit eligibility.

Issue 1: Admissibility of Modvat credit under Rule 57R(8) of Central Excise Rules, 1944:
The case involved a dispute regarding the admissibility of Modvat credit on capital goods by M/s Nish Fibres under Chapter 54 of Central Excise Tariff Act, 1985. The respondent had availed Modvat credit but claimed depreciation on the amount representing central excise duty paid on the same capital goods. The Joint Commissioner issued a show cause notice disallowing the Modvat credit, which was upheld in the order in original. However, the Commissioner (Appeals) allowed the appeal, leading to the CESTAT confirming the decision based on the Alcobex Metals Ltd. case. The Tribunal observed that the respondent had withdrawn the depreciation claim by filing a revised income tax return, thus justifying the allowance of Modvat credit.

Issue 2: Application of decisions in Alcobex Metals Ltd. and Narayan Krishna Spinners Ltd.:
The appellant challenged the CESTAT order citing the Narayan Krishna Spinners Ltd. case, arguing that the facts differed significantly. In the Narayan Krishna Spinners Ltd. case, the appellant had not withdrawn the depreciation claim, leading to a clear mis-declaration under Rule 57-T. The Tribunal held that the facts in this case were distinct from Alcobex Metals Ltd., emphasizing the importance of factual variations in determining the applicability of legal precedents.

Issue 3: Claim of depreciation on capital goods and its impact on Modvat credit eligibility:
The crucial consideration revolved around whether the respondent had actually claimed depreciation and if such a claim had been allowed by the department. The Commissioner (Appeals) verified the claim's authenticity by seeking confirmation from the Commissioner of Income Tax, Surat, who certified it. It was established that the respondent did not avail depreciation on the duty amount, as confirmed by the income tax authorities. The Tribunal concurred with this view, emphasizing that the corrective method of compliance with Modvat credit rules, even if done later, should not result in denial of substantial benefits. The consistent application of legal principles aimed to prevent double benefits under the Income Tax Act and Central Excise Rules guided the dismissal of the appeal, as the respondent had not claimed such dual benefits.

In conclusion, the High Court upheld the CESTAT decision, emphasizing the importance of factual verification and adherence to legal principles to prevent double benefits, ultimately dismissing the appeal.