Air conditioners as capital goods for software development units qualified for de-bonding benefit under Notification No. 1/95-C.E.

Air conditioners used in a 100% EOU/STP software-development unit were treated as capital goods for Notification No. 1/95-C.E. on de-bonding because they were necessary to maintain controlled environmental conditions for production. Board Circular No. 289/5/97-CX clarified that air-conditioners required for manufacture or production by 100% EOU/EHTP/STP units could be so treated, and that the customs circular instructions applied mutatis mutandis to the notification. The record also noted that a similar view had already attained finality in another matter, and the department's challenge failed.

---

---

Issues: Whether air conditioners used by a 100% EOU/STP unit engaged in software development are eligible to be treated as capital goods and to obtain the benefit of Notification No. 1/95-C.E. on de-bonding.

Analysis: The dispute turned on whether air conditioners, though not generally listed as capital goods, could qualify when they were essential for creating controlled environmental conditions necessary for software development. The Board's Circular No. 289/5/97-CX clarified that air-conditioners required and necessary for manufacture or production by 100% EOU/EHTP/STP units were to be treated as capital goods and that the instructions relating to the customs circular were to apply mutatis mutandis to Notification No. 1/95-C.E. The record also showed that a similar view had already been accepted in another case and had attained finality.

Conclusion: Air conditioners used for the software-development activity of the respondent were eligible for the benefit of Notification No. 1/95-C.E., and the department's appeal failed.

---