Depreciation and notification-based demand rules barred duty recovery under the export-oriented unit scheme on these facts.
Depreciation on capital goods had to be applied on a straight-line basis when computing duty liability under the export-oriented unit scheme, so the demand could not be raised on the gross value of assets used for many years. Recovery also had to be founded on the relevant exemption notifications governing import and domestic procurement; the Letter of Permission alone was not sufficient authority for duty recovery. On the facts, expiry of the Letter of Permission, lack of renewal, de-bonding circumstances, and the net foreign exchange positive position supported the view that no surviving duty liability was established. The duty demand and consequential penalties were therefore set aside.
Issues: (i) Whether depreciation on capital goods had to be taken into account while computing duty liability on failure to fulfil export obligation under the export-oriented unit scheme. (ii) Whether duty could be recovered on the basis of the Letter of Permission when the exemption notifications governing import and domestic procurement of capital goods were not the foundation of the demand. (iii) Whether, on the facts, the appellant had become entitled to no duty liability by efflux of time, de-bonding entitlement, and fulfilment of the net foreign exchange positive requirement.
Issue (i): Whether depreciation on capital goods had to be taken into account while computing duty liability on failure to fulfil export obligation under the export-oriented unit scheme.
Analysis: The capital goods had been in use for a long period after commencement of the unit, and the applicable circular-based straight-line depreciation had to be applied in duty computation. The liability could not be assessed by ignoring the reduction in value over time, particularly where the goods had remained with the unit for more than a decade.
Conclusion: Depreciation had to be factored into the computation, and the duty demand could not be sustained on the gross value of the capital goods.
Issue (ii): Whether duty could be recovered on the basis of the Letter of Permission when the exemption notifications governing import and domestic procurement of capital goods were not the foundation of the demand.
Analysis: Recovery of duties foregone under the scheme had to rest on the exemption notifications issued under the customs and central excise framework. The impugned demand was not shown to arise from breach of the conditions of those notifications, and the Letter of Permission by itself was not sufficient authority for recovery of duty.
Conclusion: The demand was unsustainable because it was not founded on the governing exemption notifications.
Issue (iii): Whether, on the facts, the appellant had become entitled to no duty liability by efflux of time, de-bonding entitlement, and fulfilment of the net foreign exchange positive requirement.
Analysis: The Letter of Permission had expired after ten years, renewal was not sought, and the unit had sought exit from the scheme. The record did not establish the large export shortfall alleged in the notice, and the later regime of net foreign exchange positive and de-bonding supported the appellant's case that the duty liability had not survived in the manner assumed by the adjudicating authority.
Conclusion: No surviving duty liability was made out on these facts.
Final Conclusion: The duty confirmation and consequential penalties were set aside because the computation ignored depreciation, the demand lacked proper notification-based foundation, and the factual and regulatory position did not justify recovery.
TaxTMI 
AI Drafter ✕
TaxTMI 
