Debonding of EOU capital goods: duty follows depreciated value and approved scheme rate; consumed inputs attract no duty.

On debonding of a 100% EOU, duty on capital goods is to be computed under the exemption notification under which they were originally cleared, on depreciated value and at the rate in force on the relevant clearance date. Where the Development Commissioner and Joint DGFT permitted clearance under the EPCG route, the EPCG rate applies to the debonded capital goods. No duty survives on raw materials and consumables already consumed in manufacture of export goods, as they are not available for debonding. The demand, confiscation and penalty findings could not stand as framed and required recomputation accordingly.

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Issues: (i) Whether capital goods imported and indigenous capital goods procured for a 100% EOU were liable to duty on debonding only on their depreciated value under the notification under which they were originally cleared. (ii) Whether the rate of duty on such debonded capital goods was to be applied with reference to the EPCG scheme, and whether duty could be demanded on raw materials and consumables already consumed in manufacture and export.

Issue (i): Whether capital goods imported and indigenous capital goods procured for a 100% EOU were liable to duty on debonding only on their depreciated value under the notification under which they were originally cleared.

Analysis: The goods had been imported and procured under the earlier exemption notifications governing the EOU scheme. The relevant notification expressly permitted clearance of capital goods on payment of customs duty on the depreciated value and at the rate in force on the date of payment. The Tribunal applied this text and followed earlier decisions holding that, on debonding, duty is not to be computed on the original duty foregone under later notifications, but on the depreciated value of the capital goods under the original exemption regime.

Conclusion: The duty on the capital goods was payable only on the depreciated value and not on the basis adopted in the adjudication order.

Issue (ii): Whether the rate of duty on such debonded capital goods was to be applied with reference to the EPCG scheme, and whether duty could be demanded on raw materials and consumables already consumed in manufacture and export.

Analysis: Since the Development Commissioner and the Joint DGFT had permitted clearance of the capital goods under the EPCG route, the applicable rate was held to be the EPCG rate prevailing at debonding. As the raw materials and consumables had already been consumed in manufacture of export goods and were not available for debonding, no duty liability survived in respect of those items.

Conclusion: The EPCG rate was held applicable to the debonded capital goods, and no duty was payable on the consumed raw materials and consumables.

Final Conclusion: The duty demand and consequential confiscation and penalty findings could not stand as framed, and the matter required fresh computation of duty on the capital goods in accordance with depreciated value and the EPCG rate, with no duty on consumed inputs.

Ratio Decidendi: On debonding of an EOU, duty on capital goods is to be determined under the exemption notification under which they were originally cleared, on depreciated value, and the applicable rate is that governing the approved clearance scheme at debonding; no duty arises on inputs already consumed for the intended export production.

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