EOU capital goods duty demand was premature without de-bonding, and depreciation had to be allowed in recomputation.

Capital goods imported under the EOU scheme remained treated as under bond because no de-bonding order had been issued, so a duty demand for alleged non-fulfilment of export conditions was premature and could not be finally sustained at that stage. The duty liability had to be recomputed after de-bonding, and depreciation was required to be allowed on goods that had actually been put to use, in line with the applicable Board instructions and Tribunal-recognised principles.

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Issues: (i) whether the duty demand on capital goods procured under the EOU scheme was premature in the absence of a de-bonding order and while the goods were still deemed to be under bond; (ii) whether depreciation had to be allowed while computing the duty liability on such capital goods.

Issue (i): Whether the duty demand on capital goods procured under the EOU scheme was premature in the absence of a de-bonding order and while the goods were still deemed to be under bond.

Analysis: The unit had substantially discharged the export obligation and the capital goods had been used for a substantial period. No de-bonding order had been issued by the competent authority, so the capital goods continued to be treated as under bond. In that situation, a demand for duty on the footing of breach of exemption conditions could not be finally sustained at that stage.

Conclusion: The duty demand was premature and the matter had to go back to the original authority after de-bonding.

Issue (ii): Whether depreciation had to be allowed while computing the duty liability on such capital goods.

Analysis: The duty computation had to follow the applicable Board instructions and the depreciation principle recognized by the Tribunal. Since the goods had been put to use, depreciation could not be denied while reassessing the duty liability.

Conclusion: Depreciation was required to be granted in the recomputation of duty.

Final Conclusion: The impugned order was set aside and the matters were remanded to the original authority for fresh decision after de-bonding and for recomputation of duty with depreciation.

Ratio Decidendi: Where capital goods imported under an EOU scheme remain deemed to be under bond in the absence of a de-bonding order, duty demand on account of failure to fulfil export conditions is premature, and depreciation must be allowed in computing the liability on goods that were actually used.

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