Cenvat Credit on capital goods if depreciation is claimed under incometax

[sankunni krishnan]

Sir,My client has claimed cenvat credit on capital goods.By mistake the have provided depreciation also.The Audit Officers are insisting to pay back cennvat credit  before finalising the audit and before issuing ythe audit report to avoid penalty.Is there any caselaws that abandoning depreciation by filing revised excise return and stick to retaining of cenvat credit on capital goods to minise the loss?

[Snehal Kulkarni]

Rule 4 (4) of Cenvat Credit Rule 2004 states that

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(4) The CENVAT credit in respect of capital goods shall not be allowed in respect of that part of the value of capital goods which represents the amount of duty on such capital goods, which the manufacturer or provider of output service claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of 1961).

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Accordingly, it is clear that if some one claims the depreciation, the Cenvat Credit is not allowed.

The stand taken by the audit officer is correct.

[CA Rachit Agarwal]

Mr. Mangesh is right, however as a measure of tax planning,

it is better not to take depreciation benefit then to avail the cenvat credit.

In case of taking depreciation, income tax benefit is equal to the 33% approx of the depreciation amount.

However in case of cenvat credit, 100% is the benefit.

[RB SINGH]

I agree with the views expressed by Mr Mangesh Lokre and Sh CA Rachit Agarwal, but in case your client can file revised IT return, deleting the depreciation claimed and you are able to satisfy the Central Excise authorities that benefit under IT Act has been amended , you have a case. Some of the cases covering the similar matter where the courts have allowed the benefit are.

2010(257) ELT 81(GUJ) in case of  CCE Vs Nish Fibre

2009(246) ELT 263 (T- Chennai)  in case of CCE Vs Ennar Spinning

2009(238) ELT 462 (T- Chennai)   in case of CCE Vs Veejay Laxmi

2009(238) ELT 189 (T- Chennai)  in case of CCE Vs Jaya Mills

AI Summary

Client Faces Cenvat Credit Repayment Due to Depreciation Claim Error; Revising Tax Return May Resolve Issue Per Rule 4(4). (4) A client mistakenly claimed both Cenvat credit and depreciation on capital goods, prompting audit officers to demand repayment of the Cenvat credit to avoid penalties. According to Rule 4(4) of the Cenvat Credit Rules 2004, claiming depreciation disallows Cenvat credit. Experts agree with the audit officer's stance but suggest that not claiming depreciation is more beneficial due to the higher percentage benefit of Cenvat credit. If the client files a revised income tax return removing the depreciation claim, they might retain the Cenvat credit, supported by precedent cases where similar actions were upheld by courts.