2017 (12) TMI 1665 - AT - Income Tax

Reopening of assessment - addition of unutilized CENVAT credit - as held by by the AO that it cannot be treated as advance given to the Government on account of excise payable - addition of excise duty in closing stock value since the assessee runs its cars on hire - HELD THAT - There is no dispute that the assessee had paid the impugned excise duty on motor cars purchased for its hiring business. It reduced the relevant excise duty on the said purchases from the total cost of the motor cars. This followed its depreciation claim on the consequential reduced cost thereof. The assessee thereafter treated the above excise duty amount as an advance in its balance sheet s asset side. Revenue is fair enough in not disputing the fact that it is already entitled to claim 50% of the above excise duty as CENVAT credit. The assessee has admittedly set off its service tax payable to the extent of 50% of the above excise duty. It thereafter has carried forward the remaining amount in the next year - there is no income element embedded therein since the assessee is not entitled to get the same refunded from the government since the same has to be utilized only against the service tax payable. We therefore express our agreement with learned CIT(A) s conclusion that the above excise duty cannot be added in closing stock value since the assessee runs its cars on hire. - Decided against revenue

Summary

Issues:
Appeal against CIT(A)'s order reversing AO's addition of unutilized CENVAT credit.

Analysis:
The appeal was filed by the Revenue against the CIT(A)'s order for the assessment year 2008-09, challenging the addition of unutilized CENVAT credit by the Assessing Officer. The CIT(A) extensively discussed the facts and the issue at hand. The AO contended that the unutilized CENVAT credit should not be treated as an advance to the government for excise payable. However, the appellant argued that the balance in the CENVAT account was not a subsidy or incentive but was due to Excise Duty charged by the car manufacturer. The appellant explained that the unutilized credit balance was justified as it was related to the capital assets purchased for the business. The appellant had utilized 50% of the credit against service tax and transferred the remaining amount to the next year. The CIT(A) found that the appellant was entitled to claim the CENVAT credit as per the Excise Rules and that the unutilized credit was not income but a regulatory credit. The CIT(A) concluded that no addition should be made to the appellant's income, and the addition was directed to be deleted.

The Revenue contended that the CIT(A) erred in law and fact by deleting the CENVAT credit addition. However, the Tribunal found no merit in the Revenue's argument. It acknowledged that the appellant had paid excise duty on motor cars purchased for the hiring business, and the appellant had already claimed 50% of the excise duty as CENVAT credit. The Tribunal agreed with the CIT(A) that there was no income element in the unutilized credit as it could only be used against service tax payable and not refunded. The Tribunal upheld the CIT(A)'s decision that the excise duty should not be added to the closing stock value as the appellant was in the business of running cars on hire. Therefore, the Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s finding.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition of unutilized CENVAT credit made by the Assessing Officer. The Tribunal found that the unutilized credit was not income but a regulatory credit that could only be utilized against service tax payable. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s conclusion that the excise duty should not be added to the closing stock value due to the nature of the appellant's business.