EOU debonding and EPCG concession depend on specific exemption, while revenue neutrality does not erase duty liability

On debonding from a 100% EOU scheme, concessional treatment for indigenous capital goods under an EPCG-linked arrangement was held to depend on a specific exemption notification under the Central Excise regime; in its absence, the concession and related refund were not available merely because the customs-side framework contemplated EPCG-linked debonding. The commentary also notes that revenue neutrality does not extinguish the underlying duty liability, because the availability of credit is subject to statutory conditions and does not justify non-payment of duty. The impugned order was sustained and the appeal failed.

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Issues: (i) Whether an assessee, while debonding from the 100% EOU scheme, was entitled to the benefit of the EPCG scheme and consequential refund of differential duty on capital goods procured indigenously; (ii) whether the plea of revenue neutrality could defeat the duty demand.

Issue (i): Whether an assessee, while debonding from the 100% EOU scheme, was entitled to the benefit of the EPCG scheme and consequential refund of differential duty on capital goods procured indigenously.

Analysis: The applicable notification framework was examined along with the Foreign Trade Policy provisions governing debonding and EPCG clearance. The Tribunal followed its earlier view that, although debonding may be permissible when the positive NFE condition is satisfied, the benefit of concessional treatment for capital goods at the time of debonding must rest on a specific exemption notification. In the absence of such a covering exemption under the Central Excise regime, the claimed concession was not available merely because the customs-side notification contemplated EPCG-linked debonding.

Conclusion: The assessee was not entitled to EPCG benefit for debonding of the unit or refund of the duty paid.

Issue (ii): Whether the plea of revenue neutrality could defeat the duty demand.

Analysis: The Tribunal held that availability of credit does not erase the underlying duty liability and that revenue neutrality cannot be used as a bar against confirmation of tax otherwise payable. The possibility of credit, being subject to statutory conditions, does not create a right to withhold payment of duty.

Conclusion: The plea of revenue neutrality was rejected.

Final Conclusion: The impugned order was sustained and the appeal failed in entirety.

Ratio Decidendi: A concession on debonding of EOU capital goods can be claimed only through an applicable exemption notification, and the mere availability of credit does not nullify the duty liability.

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