EOU de-bonding duty and credit rules upheld for indigenous stock, cenvat utilisation, and licence-based discharge

Limitation could not be extended because the departmental challenge did not effectively dispute the time-bar finding and the record showed no suppression, collusion, wilful misstatement or intent to evade duty. On de-bonding of an EOU, duty on indigenous and imported goods was to be treated according to their respective character, so customs duty was not levied on domestic stock merely because the unit exited the EOU scheme. The rules permitted discharge of duty by cenvat credit, and credit was admissible on eligible indigenous inputs and on CVD/SAD paid goods used in manufacture. EPCG and advance authorisation could also be used for payment, and no duty liability was established on finished goods, raw materials or work-in-progress as claimed by Revenue.

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Issues: (i) Whether the departmental appeals were barred by limitation and whether the extended period could be invoked; (ii) whether, on de-bonding of an EOU, the duty on stock and cleared goods was payable as customs duty or central excise duty; (iii) whether payment of excise duty through utilisation of cenvat credit was lawful; (iv) whether cenvat credit was admissible on duty paid on indigenous goods and on CVD/SAD paid on imported inputs and capital goods; (v) whether duty could be discharged by debiting EPCG licence and advance authorisation obtained for de-bonding; (vi) whether duty was payable on finished goods, raw materials and work-in-progress lying in stock at the time of exit.

Issue (i): Whether the departmental appeals were barred by limitation and whether the extended period could be invoked.

Analysis: The finding of the lower authority that the demand was time-barred remained unchallenged in substance. The departmental challenge was directed only to merits and did not assail the limitation finding. The show cause notice and record also did not establish collusion, wilful misstatement, suppression of facts, or any intent to evade duty so as to justify the extended period under the relevant customs and excise provisions.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether, on de-bonding of an EOU, the duty on stock and cleared goods was payable as customs duty or central excise duty.

Analysis: The scheme governing exit from EOU status contemplates payment of applicable customs and excise duties on the respective categories of goods. Goods already situated in India and procured from the domestic market do not acquire the character of imported goods merely because the unit exits the EOU regime. The policy provisions and the departmental stand in the appeal itself supported duty bifurcation between imported and indigenous goods.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (iii): Whether payment of excise duty through utilisation of cenvat credit was lawful.

Analysis: The governing rule permitted removal of goods from an EOU to DTA on payment of duty either in cash or by utilising available cenvat credit. The assessee's payment method therefore had direct support in the rules and in consistent tribunal precedent.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (iv): Whether cenvat credit was admissible on duty paid on indigenous goods and on CVD/SAD paid on imported inputs and capital goods.

Analysis: Credit was available when the goods qualified as inputs or capital goods, were received in the factory, and were used in manufacture of excisable goods. Those conditions stood satisfied on the facts. The assessee also paid duty under proper invoices. The Revenue's selective denial of SAD credit, while allowing credit in part, was inconsistent with the credit scheme.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (v): Whether duty could be discharged by debiting EPCG licence and advance authorisation obtained for de-bonding.

Analysis: The relevant policy and notifications did not prescribe that such licences must be obtained before a particular date, and they did not prohibit their use once validly issued. The licensing authority had not cancelled or questioned the licences. The customs and excise authorities could not deny the benefit merely on an allegation that the licences were obtained after the cut-off date. The benefit of debiting such licences was therefore available.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (vi): Whether duty was payable on finished goods, raw materials and work-in-progress lying in stock at the time of exit.

Analysis: Finished goods lying in stock continued to be covered by the EOU regime until final exit, and goods exported under bond before the final de-bonding order did not attract duty. Even otherwise, the exercise was revenue-neutral because any duty paid would be refundable. As regards work-in-progress, no duty was leviable at the intermediate stage because it was not excisable goods. For the remaining stock, the assessee's liability was not established in the manner suggested by the Revenue.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The departmental challenge failed on limitation and on merits, while the assessee was entitled to consequential refund with interest. The refund disallowance could not survive and the assessee's appeals succeeded.

Ratio Decidendi: In an EOU de-bonding case, where the statute and policy permit payment of duty by cash or credit and the licence and credit conditions are satisfied, the Revenue cannot deny the benefit merely on a different interpretation of the de-bonding mode or by invoking the extended period without proof of suppression or intent to evade.

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