TMI Blog2004 (2) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. The assessee was entitled to Modified Value Added Tax relief (in short MODVAT). The said scheme was introduced for the first time in 1986 with a view to provide relief from the cascading effect of the excise duty dues. The scheme was initially available in respect of certain inputs, such as, raw material. It was subsequently extended to cover certain specified capital goods. By virtue of the said scheme, the credit of duty of central excise or additional duty of customs in respect of goods used and/or in relation to the manufacture of final products can be utilised towards payment of duty of excise on the final products. The rules relating to the MODVAT are incorporated in the Central Excise Rules, 1944. The assessee had taken advantage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by virtue of MODVAT scheme to the extent of duty paid on raw material/capital goods. By the notification issued by the Central Government, the assessee is entitled to enjoy total exemption from excise duty as against the limited exemption to the extent of the MODVAT credit. There is, thus, no loss to the assessee on account of the notification issued by the Government in granting exemption from duty on the goods manufactured by the assessee. The decision of the CIT(A), according to the learned Departmental Representative, is contrary to law and the same deserves to be reversed. 5. The learned counsel for the assessee, on the other hand, contended that the assessee has, in fact, suffered a loss by reason of general exemption granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o had utilised the MODVAT credit in the earlier years. The assessee is entitled to exemption from excise duty and the duty paid on inputs and machinery in earlier years has not been claimed as deduction by the assessee by following a just and reasonable method of accounting. According to the learned counsel, though the deduction on account of duty paid on inputs and on capital goods on account of MODVAT credit may not strictly be pertaining to the year under appeal, so however by operation of law, the assessee having lost the right to receive the MODVAT credit, a reasonable view may be taken so that no injustice is done to the assessee merely because they have been more than reasonable in not claiming the same in earlier years. 6. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actured goods the assessee would be entitled to set off of the duty paid on inputs. As and when the advantage of the MODVAT credit receivable was taken by the assessee by not paying duty on the manufactured goods to the extent of the credit available, the assessee would have credited the amount in the books of account or reduce the liability on account of excise duty. In this manner the unutilised MODVAT credit would not have been offered for taxation in the year the assessee had become entitled to such credit. The assessee has followed a method of accounting by virtue of which the debit on account of inputs/capital goods is reduced immediately on assessee becoming entitled to credit notwithstanding the fact that the amount would be set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit as per the scheme in respect of the goods which are exempt to tax, in our considered view, the cost of unutilised inputs of the preceding year should be allowed to be enhanced by the amount of MODVAT credit attributable to such inputs carried forward from the preceding year. From the statement of accounts available to us it is observed that out of Rs. 8,34,147 of MODVAT credit, the duty attributable to inputs is Rs. 2,29,496. Therefore, the assessee, in our view, is entitled to the deduction of Rs. 2,29,496 on account of the duty attributable to the inputs carried forward from the preceding year. The value of the opening stock will thus be enhanced by Rs. 2,29,496. In regard to the remaining amount of Rs. 6,04,651, the MODVAT credit is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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