Commercial production under EOU scheme supports depreciation and exemption despite export shortfall caused by uncontrollable circumstances.

A 100% Export Oriented Unit that had commenced commercial production but could not meet export obligations because of circumstances beyond its control was held entitled to depreciation on duty-free imported capital goods and the benefit of the exemption notification. The analysis noted that the unit had imported capital goods and raw materials under the EOU scheme, and that commercial production had in fact begun, including supplies to other exporters in India. As the notification allowed depreciation from the date of commencement of commercial production, the refusal of exemption and depreciation was not justified. The Revenue's objection therefore failed, and the unit retained the benefit of the notification.

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Issues: Whether a 100% Export Oriented Unit that commenced commercial production but failed to fulfil export obligations due to circumstances beyond its control was entitled to depreciation on duty-free imported capital goods and the benefit of the exemption notification.

Analysis: The unit had imported capital goods and raw materials under the 100% EOU scheme. The failure to complete export obligations was attributed to factors beyond the unit's control, including adverse conditions affecting the aquaculture industry. The record also showed that commercial production had commenced and goods were supplied to other exporters in India. The notification contemplated depreciation from the date of commencement of commercial production, and the unit's conduct showed that production had in fact begun. In these circumstances, the denial of exemption and depreciation was not justified.

Conclusion: The unit was entitled to the benefit of the notification and depreciation on the imported capital goods; the Revenue's objection failed.

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