Debonding of a 100% EOU requires depreciation under the original exemption notification, with penalty needing specific factual findings.

On debonding of a 100% EOU, depreciation on imported capital goods had to be recomputed under Notification No. 53/97-Cus., because the goods were originally imported under that notification and duty was payable on depreciated value at the time of debonding. The depreciation period was to run from commencement of commercial production until duty payment, with relevant Board circulars and Tribunal guidance considered for re-quantification. Penalty under Section 117 of the Customs Act and Rule 26 of the Central Excise Rules could not be sustained on the existing findings, as the order did not record a specific basis linking the alleged acts to the invoked penal provisions. The matter was remanded for fresh adjudication on duty and penalty.

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Issues: (i) Whether, on debonding of a 100% EOU, depreciation on imported capital goods had to be computed under Notification No. 53/97-Cus. or under Notification No. 52/2003-Cus.; (ii) Whether penalty under Section 117 of the Customs Act, 1962 and Rule 26 of the Central Excise Rules was sustainable against the Director and Managing Director.

Issue (i): Whether, on debonding of a 100% EOU, depreciation on imported capital goods had to be computed under Notification No. 53/97-Cus. or under Notification No. 52/2003-Cus.

Analysis: The capital goods were imported under Notification No. 53/97-Cus. and the unit was later permitted to be debonded. At the time of debonding, duty was payable only on the depreciated value of the capital goods. Since the goods were imported under the earlier notification, the applicable depreciation mechanism had to be worked out under that notification and not under Notification No. 52/2003-Cus. The period of depreciation had to run from the date of commencement of commercial production up to the date of payment of duty, and the applicable Board circulars and earlier Tribunal guidance had to be taken into account for re-computation.

Conclusion: The depreciation was to be recomputed under Notification No. 53/97-Cus., and the duty demand required re-quantification.

Issue (ii): Whether penalty under Section 117 of the Customs Act, 1962 and Rule 26 of the Central Excise Rules was sustainable against the Director and Managing Director.

Analysis: The penalty had been imposed on the basis of alleged excess DTA clearances and non-intimation of export performance, but the order did not record a specific finding showing how those acts or omissions constituted a contravention attracting penalty under the cited provisions. In the absence of such findings, the penalty could not be sustained without fresh examination of the factual and legal basis for invocation of those provisions.

Conclusion: The penalty required fresh consideration and could not be sustained on the existing findings.

Final Conclusion: The impugned order was set aside and the matter was remanded for fresh adjudication on duty quantification and penalty.

Ratio Decidendi: Where capital goods were imported under a specific exemption notification, depreciation on debonding must be computed under that notification according to its terms and the applicable depreciation period, and penalty can be imposed only on a specific finding that the proven acts attract the invoked penal provisions.

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