De-bonding of an EOU allows duty on depreciated capital goods, but later departmental auction does not end duty liability.

On de-bonding of a 100% EOU, customs duty on imported capital goods is to be recomputed on the depreciated value where the governing notification permits clearance in India, and depreciation up to the prescribed ceiling may be allowed. The fact that the goods were later confiscated and auctioned by the Department does not extinguish the importer's duty and interest liability arising on de-bonding. In the circumstances described, however, the penalty was waived, reflecting a lenient approach where the duty was being reworked after depreciation and the unit had ceased operations.

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Issues: (i) whether, on de-bonding of a 100% EOU, customs duty on imported capital goods was required to be reworked by allowing depreciation up to 90%; (ii) whether the appellant could avoid customs duty and interest on the ground that the capital goods had been confiscated and auctioned by the Department; and (iii) whether the penalty imposed was sustainable.

Issue (i): whether, on de-bonding of a 100% EOU, customs duty on imported capital goods was required to be reworked by allowing depreciation up to 90%?

Analysis: The notification governing clearance of capital goods from an EOU permitted duty on the depreciated value where the unit had been allowed by the Development Commissioner to clear the goods in India. The unit had ceased operations, had sought de-bonding, and the duty had ultimately been paid before the de-novo order. On these facts, the clearance was treated as one attracting the depreciated value mechanism. The contemporaneous CBEC circular and the cited case law also supported allowance of depreciation up to the prescribed ceiling.

Conclusion: Depreciation up to 90% was allowable while reworking the customs duty payable on the capital goods, in favour of the assessee.

Issue (ii): whether the appellant could avoid customs duty and interest on the ground that the capital goods had been confiscated and auctioned by the Department?

Analysis: The goods were imported and used under a 100% EOU regime, and the duty liability had arisen on de-bonding. The subsequent auction by the Department did not extinguish the appellant's liability, particularly when the duty had already been discharged in the original proceedings and the de-bonding process had taken place thereafter. The plea based on absence of possession was therefore rejected.

Conclusion: The appellant remained liable to pay customs duty and interest, and the auction of the goods did not absolve that liability, against the assessee.

Issue (iii): whether the penalty imposed was sustainable?

Analysis: In view of the circumstances of the case, including the business closure and the need to rework the duty after granting depreciation, a lenient approach was warranted. The penalty was not considered necessary to be retained.

Conclusion: The penalty was waived, in favour of the assessee.

Final Conclusion: The duty payable on the imported capital goods had to be recomputed after granting depreciation up to 90%, the liability to duty and interest was otherwise upheld, and the penalty was set aside.

Ratio Decidendi: On de-bonding of an EOU, where the unit is permitted to clear imported capital goods in India, duty is to be computed on the depreciated value in accordance with the governing notification, but subsequent auction of the goods by the Department does not by itself extinguish the importer's duty liability.

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