Export-oriented unit's duty recovery appeal succeeds due to errors in duty calculation and scheme compliance

The appellant, a 100% export-oriented unit, faced duty recovery demands due to a shortfall in meeting export obligations. The impugned order failed to properly base the duty demand on relevant notifications and distinguish between obligations at different stages. The Tribunal's precedent established the need to consider depreciation in duty computation for capital goods. The failure to renew the Letter of Permission and de-bond the unit as required impacted the duty recovery process. The impugned order did not adequately address changes in scheme requirements. Consequently, the impugned order was set aside, and the appeal was allowed.

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Issues:
Eligibility for depreciation on capital goods in the computation of liability to duty upon failure to comply with prescribed export obligation.

Analysis:
1. The appellant, a 100% export-oriented unit, failed to fulfill its export obligation under the scheme. The demand for recovery of duties foregone at the time of import and procurement from the domestic market was made due to the shortfall in exports compared to the obligation.

2. The scheme allowed the import or procurement of capital goods, consumables, and raw materials for export production. The breach of export obligation in the Letter of Permission would trigger duty liability as specified in the said letter.

3. The recovery of duties should be based on the notifications issued under Customs Act, 1962, and Central Excise Act, 1944. The impugned order did not base the demand on the conditions in the notifications, which should have been the foundation for any recovery proceedings.

4. The computation of export obligation varied over time, and the impugned order failed to distinguish between the obligations at the time of the Letter of Permission issuance and the show cause notice. The appellant argued that the export obligation was lower than asserted and that they had applied for de-bonding without response, affecting their eligibility for depreciation.

5. The Tribunal's decision in a previous case established that depreciation must be considered in duty computation for capital goods. The duty liability on imported or domestically procured capital goods diminishes over time due to depreciation.

6. The Letter of Permission was issued for ten years, and the appellant did not seek renewal. The failure to de-bond the unit as per rules impacted the duty recovery process. The impugned order did not address this aspect adequately.

7. Despite the scheme restructuring, the appellant would have been eligible for de-bonding without duty payment based on the net foreign exchange positive obligation. The impugned order did not consider this change in the scheme's requirements.

8. The duty confirmation and penalties did not align with the legal intent and wording. Hence, the impugned order was set aside, and the appeal was allowed.

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