De-bonding notification duties: export-obligation shortfall and depreciation-based capital goods duty may both apply

A de-bonded unit under an export-obligation notification may be subject to two distinct duty consequences: duty with interest where the positive Net Foreign Exchange Earning obligation is not met, and a separate depreciation-based duty mechanism for clearance of capital goods on closure or de-bonding. The interpretation that only the export-obligation condition applied was rejected because it would make the depreciation-linked clause ineffective. On that reading, the Department's construction of the notification was treated as prima facie correct, and the Revenue was found to have established a strong prima facie case for stay of the refund order.

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Issues: Whether the respondent, on de-bonding of the unit, was required to pay customs duty only under the export-obligation condition or also on the depreciated value of the capital goods, and whether the Revenue had made out a prima facie case for stay of the refund order.

Analysis: The applicable notification required payment of duty with interest where the positive Net Foreign Exchange Earning obligation was not achieved. The Revenue contended that, in the case of de-bonding and closure of the unit, a further requirement under the notification applied and duty had to be worked out on the depreciated value of the capital goods. The interpretation suggested on behalf of the respondent would render the depreciation-based condition ineffective, which was not consistent with the notification scheme. On that basis, the view taken by the Department was found to be prima facie correct.

Conclusion: The Revenue established a strong prima facie case, and the impugned order was stayed.

Ratio Decidendi: Where the notification governing de-bonding and export obligation contains both the duty-and-interest consequence for shortfall in Net Foreign Exchange Earning and a separate depreciation-based duty mechanism for clearance of capital goods, both conditions operate according to the situation and the latter cannot be treated as otiose.

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