A lessee is not entitled to CENVAT Credit on Capital Goods if the lessor has already availed Depreciation: CESTAT Ahmedabad [Read Order]

Business Auxiliary Service -taxscan

Recently, the CESTAT Ahmedabad bench ruled that a lessee is not entitled to CENVAT Credit on capital goods if the lessor has already availed depreciation under the Income Tax Act.

The bench was hearing an appeal against the order of the first appellate authority, who denied CENVAT Credit to the appellant on the capital goods procured under a lease agreement on ground that the lessor had availed the benefit of depreciation under  Section 32 of the Income Tax Act, 1961, and therefore, the appellant is not entitled for the credit.

The appellant contended before the Tribunal that the lessor M/s Gujarat Gas Co. Ltd have availed depreciation under  Section 32 of the Income Tax Act, 1961 on the entire value of the capital goods including  the amount of central excise duty paid thereof. Further, as per sub-Rule (4) of Rule 4 of CENVAT Credit Rules, 2004, the depreciation was availed by the  lessor of the capital goods and since the lessor is neither a service  provider nor manufacturer, there should be no restriction  on availing CENVAT credit of duty paid on the capital goods in the hands of the Appellant.

The bench found that the lessor had availed   depreciation under Section 32 of Income Tax Act, 1961 on the entire value of the capital goods including the excise duty component on which the Appellant availed CENVAT Credit.

Analyzing the provisions of Rule 4(4) of CENVAT Credit Rules, 2004, the bench said, “On a plain reading  of the aforesaid provision it is  clear that  the credit cannot be admissible on  such capital goods on which  depreciation has been claimed under Section 32 of the Income Tax Act, 1961. It is the capital goods which is eligible to depreciation and alternatively CENVAT Credit. The appellant had claimed that even if the lessor had availed depreciation, the CENVAT credit cannot be denied on such capital goods in the hands of lessee. The argument is fallacious inasmuch as the credit is allowed on the capital goods and not on qua manufacturer or lessor of the capital goods.”

Read the full text of the order below.

taxscan-loader