Depreciation on de-bonded EOU capital goods continues until duty payment, defeating the duty demand on those goods.

In a de-bonding EOU context, depreciation on capital goods must be allowed until customs duty is actually discharged, because the duty demand cannot be sustained before payment where the goods were used during the relevant period. The Tribunal relied on the applicable Board circular and earlier decisions to hold that depreciation continues up to the date of duty payment, so the demand on capital goods was not sustainable. On the Revenue side, the appeal failed because the papers did not specify the exact duty sought on inputs and no separate liability survived on the capital goods issue after relief was granted to the assessee.

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Issues: (i) Whether depreciation on capital goods in a de-bonded Export Oriented Unit was to be allowed up to the date of discharge of duty, and consequently whether duty demand could be sustained when such duty had not yet been paid. (ii) Whether the Revenue's appeal regarding inputs and capital goods survived for consideration.

Issue (i): Whether depreciation on capital goods in a de-bonded Export Oriented Unit was to be allowed up to the date of discharge of duty, and consequently whether duty demand could be sustained when such duty had not yet been paid.

Analysis: The capital goods had been used in the unit during the relevant period and the duty on them had not been discharged. The Board circular applicable to the period required depreciation to be granted till payment of duty. The Tribunal also relied on earlier decisions taking the same view on identical facts and held that depreciation continues until the customs duty is paid.

Conclusion: The demand on capital goods was not sustainable, and the assessee succeeded on this issue.

Issue (ii): Whether the Revenue's appeal regarding inputs and capital goods survived for consideration.

Analysis: The Revenue did not specify the exact amount of duty sought to be confirmed on inputs, and the appeal papers lacked the necessary particulars for interference. As the assessee's appeal on capital goods was allowed on merits, no separate duty liability survived on that aspect.

Conclusion: The Revenue's appeals were rejected.

Final Conclusion: The common order resulted in relief to the assessee on the substantive duty demand, and the connected Revenue appeals failed.

Ratio Decidendi: In an EOU de-bonding situation, depreciation on capital goods must be allowed until the duty is actually discharged, and a duty demand cannot survive where such duty remains unpaid but is required to be assessed after allowing depreciation up to that date.

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