INCOME TAX
INSTRUCTION NO. 5204/1994
Dated: May 23, 1994
Section(s) Referred: 32
Statute: Income - Tax Act, 1961
In the Union Budget for 1994-95 a MODVAT Scheme on capital goods has been introduced by means of Rules 57-Q to 57-U of the Central Excise Rules, 1994. Briefly the provisions are that any duty paid on capital goods used for manufacture in the factory (hereinafter referred to as specified duty) shall be permitted to be utilised towards payment of excise duty leviable inter alia on the final products. But no such credit shall be allowed if the manufacturer claims depreciation u/s.32 of the Incometax Act on that part of the cost of the capital goods which represents the amounts of specified duty utilised towards payment of duty on final products. For this purpose the manufacturer is required to file a declaration before the Assistant Collector to the effect that he shall not claim depreciation on that part of the cost of the capital goods which represents the specified duty so utilised.
2. From the above scheme it can be inferred that if depreciation is claimed, credit for specified duty will not be available to the manufacturer. But the vice versa is not true i.e., if the credit has been claimed it is not possible to withdraw the depreciation on that ground. The Board desires that, in such circumstances where depreciation is claimed on the cost representing the specified duty utilised under the MODVAT Scheme, due intimation should be given to the Central Excise authorities so as to enable them to withdraw the credit allowed.
3. This may please be brought to the notice of all the concerned under your region.