Partial export fulfilment and depreciation must be reflected in de-bonding duty computation for a used EOU capital asset.

Where a 100% EOU has partly fulfilled its export obligation and the imported capital goods were actually used, duty on de-bonding must reflect that partial export performance rather than be demanded in full. The Tribunal stated that the duty computation should also be based on the depreciated value of used capital goods, with depreciation running up to the date of payment. It further noted that penalty is not justified where the shortfall in export obligation arises from business conditions and not mala fides. The matter was remanded for fresh computation of duty after giving credit for partial fulfilment and depreciation.

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Issues: (i) Whether duty could be demanded in full without granting relief for partial fulfilment of export obligation by a 100% EOU; (ii) whether duty on imported capital goods had to be recomputed on depreciated value and whether penalty was justified.

Issue (i): Whether duty could be demanded in full without granting relief for partial fulfilment of export obligation by a 100% EOU.

Analysis: The imported goods were admittedly put to use and exports were partly achieved. In such circumstances, the demand could not ignore the extent of export performance already achieved. The Tribunal also declined to deny this relief on the ground that later notifications were prospective, noting that the benefit of partial fulfilment had been recognised in earlier Tribunal decisions.

Conclusion: The assessee was entitled to credit for partial fulfilment of the export obligation, and the demand had to be recomputed accordingly.

Issue (ii): Whether duty on imported capital goods had to be recomputed on depreciated value and whether penalty was justified.

Analysis: Since the capital goods had been used, duty at the stage of de-bonding could be demanded only on the depreciated value. Depreciation was to run up to the date of duty payment. As the non-fulfilment of the export obligation was attributable to business conditions and not mala fides, penalty was not warranted.

Conclusion: Duty was required to be recomputed on depreciated value, and the penalty could not be sustained.

Final Conclusion: The impugned order was set aside and the matter was remanded to the original authority for fresh computation of duty after allowing the benefit of partial export fulfilment and depreciation.

Ratio Decidendi: Where a 100% EOU has partially fulfilled its export obligation and the imported capital goods were actually used, duty liability on de-bonding must be computed by giving appropriate credit for partial export performance and by applying depreciation on the used capital goods; penalty is not justified absent mala fides.

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