Depreciation on 100% EOU capital goods must follow the debonding regime, not the later duty payment date.

Depreciation on capital goods imported by a 100% EOU must be computed under the debonding notification regime, not extended up to the date of duty payment merely because payment was delayed. Where the unit had not achieved positive NFE and had failed to fulfil export obligations, the applicable notification required duty on the depreciated value at the rate in force on the date the undertaking ceased to be a 100% EOU, with depreciation in cases of negative NFE confined to the proportion of NFE actually achieved. Depreciation up to the date of payment was therefore inconsistent with the governing framework, and the adjudicating authority was directed to recalculate duty accordingly.

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Issues: Whether depreciation on capital goods imported by a 100% EOU is allowable up to the date of payment of duty or only up to the date of debonding.

Analysis: The applicable notification governing clearance of capital goods required duty to be paid on depreciated value at the rate in force on the date the undertaking ceased to be a 100% export-oriented undertaking. The later notification, which superseded the earlier regime, specifically contemplated payment on the depreciated value at the rate in force on the date of debonding or clearance, and in cases of failure to achieve positive NFE, depreciation was to be allowed only in proportion to the achieved NFE. The unit had not fulfilled the export obligation and had failed to achieve positive NFE. On that basis, the allowance of depreciation up to the date of payment of duty was inconsistent with the governing notification framework and the depreciation could not be extended merely because payment was delayed.

Conclusion: Depreciation was not admissible up to the date of payment of duty; it had to be restricted in accordance with the debonding regime and recalculated by the adjudicating authority.

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