Inclusion of cenvat in capital goods value at a later date.

Q1: As per definition of Section 43(1) under income tax act which defines actual cost:

As per the definition: Actual cost means the cost of the asset to the assessee as reduced by that portion of the cost thereof if any has been met directly or indirectly by any other person or authority.

excise on the capital goods for which we can take credit is the cost indirectly met by the authority.

as in your case you have not capitalized the excise which was under litigation and finally your litigation has been accepted and credit will not be available.

Now as per CCR rule 4(4) you can take one thing either ccr or depreciation, now depreciation will not be allowed to you hence you can take the Depreciation on excise. which was equally supported by the I.Tax law as cost is not met by any other authority.

Hence crux of the case is "Excise will be capitalized in the year in which litigation has been accepted along with the asset on which you are taking depreciation claim:

Q2: There is no limit when we can claim CCR hence CCR can be taken now.

Hope above will help you.

waiting for your opinion.

Thanks Mr. Garav,

Your reply was helpful, but in case 1 won't there be any problem in claiming depreciation on inclusion of cost (CENVAT portion) referred above in the value of assets as the asset was acquired at a particular date, but the question of inclusion of CENVAT portion will come at a later date, i.e., date of decision of the appellate authority that may take years. Is there any specific provision or case law on the basis of which we can justify the inclusion of CENVAT portion at a later date & do away the difference of time in inclusion of above.

As far as Case 2 is concerned, the text given in Rule 4(2)(a) of CCR, 2004 reads as follows:

“(a) The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service at any point of time in a given financial year shall be taken only for an amount not exceeding fifty per cent. of the duty paid on such capital goods in the same financial year:”

The words used in the rule are “not exceeding”, which means a lesser amount of credit may also be taken. The rule fixes an upper limit for taking credit, zero per cent, being not exceeding fifty per cent is also allowed in the year of acquisition. Balance may be taken any time. So, I totally agree with your opinion in Case 2.

if there is provisions for claiming depreciation and CCR in mutual exclusive event be on safer side why not to take depreciation ultimately both are going to help you out in taxation.

Any ways I am working on the Ist question.

CENVAT Credit is always more beneficial to an assessee as by claiming credit of CENVAT an assessee is benefitted by reducing his duty liability by 100% of the CENVAT, but in case of Depreciation the direct tax benefit would only be equal to average rate of tax, i.e., nearly 30% in case of companies. Hence, no assessee would leave a chance to claim CENVAT where there is a choice between CENVAT & Depreciation. As in our case, the option is dependent upon the decision of the appellate authority, we are trying to explore all possibilities for getting maximum benefit.

By claiming depreciation now, we will be closing the chance of getting CENVAT credit in future if required as Rule 4(4) specifically disallows credit of CENVAT on capital goods, where depreciation has been claimed.

Being on safer side is a good option where amount involved is immaterial, but where amount involved is material, tax planning becomes necessary.