2025 (9) TMI 766 - AT - Customs

Appeal allowed: depreciation on capital goods in 100% EOU permitted until debonding, remanded for duty recalculation

CESTAT allows the appellant's appeal, holding that depreciation on capital goods cleared from a 100% EOU cannot be extended only until the date of payment ... Clearance of Capital goods from 100% EOU - Relevant date for allowing depreciation - Extension of benefit of depreciation from the date of installation/ commencement of production till the date of payment of duty, instead of the date of de-bonding - HELD THAT:- Para 3 of N/N. 122/93-Cus dt. 27.12.1993 provides that the importer shall pay the customs duty on capital goods, etc., on depreciated value calculated at the rate of exchange prevailing on the date of filing of bill of entry at the time of import and the rate of duty being the rate applicable on the date the undertaking ceases to be the hundred percent export oriented undertaking. Further it is noted that N/N. 196/94-Cus dt. 08.12.1994, which rescinded N/N. 188/93-Cus, under the condition (8), allows AC/DC of Customs, with such permission of the Development Commissioner, to allow the clearance of any goods to any other place in India. And for such clearance of capital goods, depreciation is allowed up to date of payment of duty. The condition pertains to normal debonding of the unit which obtains such permission from the Development Commissioner. The depreciation till the date of payment of duty instead of till the date of debonding is not legal and proper and the order to that effect by Commissioner (Appeals) is set aside. Therefore, the appeal is liable to be allowed by way of remand to the adjudicating authority only for the limited purpose of recalculation of duty accordingly. ISSUES PRESENTED AND CONSIDERED 1. Whether depreciation on capital goods imported/cleared duty-free for a 100% EOU is to be allowed up to the date of payment of duty or up to the date of debonding/clearance when export obligations (including positive NFE) are not satisfied. 2. If a unit fails to achieve the prescribed positive Net Foreign Exchange (NFE) or export obligation, whether depreciation must be proportionately restricted and duty reworked on the depreciated value as on debonding/clearance. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Period for allowance of depreciation: up to date of payment of duty or up to date of debonding/clearance Legal framework: Para 3 of Notification No. 122/93-Cus (27.12.1993) provides that customs duty on capital goods shall be paid on depreciated value calculated at the rate of exchange prevailing on the date of filing of bill of entry at import and at the rate of duty applicable on the date the undertaking ceases to be a 100% EOU. Subsequent Notifications (including Notification No. 196/94-Cus and Notification No. 52/2003-Cus as amended) permit clearance/debonding on payment of duty on depreciated value at the rate in force on the date of debonding/clearance and, where positive NFE is not achieved, provide for depreciation in the same proportion as the achieved portion of NFE. Precedent treatment: Coordinate and Tribunal decisions have held that continuing post-import conditions (such as export obligation/NFE) can be enforced and that duty becomes payable when obligations are not fulfilled; certain benches have allowed depreciation up to date of debonding/clearance where debonding occurred. Decisions cited (summarized in the judgment) treat allowance of depreciation as linked to debonding/clearance and to fulfillment (or failure) of export/NFE conditions. Interpretation and reasoning: The Tribunal examined the text of the Notifications and the later amendments which expressly contemplate payment of duty on depreciated value at the rate in force on the date of debonding/clearance, and which condition the benefit on fulfillment of positive NFE. The Court rejected the departmental contention that allowance of depreciation until actual payment (irrespective of debonding) should be adopted to prevent delay consequences; instead the Tribunal emphasized that the scheme contemplates debonding/clearance as the operative event for computing duty where permission for clearance is granted by the Development Commissioner/Customs authorities. Literal construction of the Notifications supports depreciation being computed up to the date of debonding/clearance (or proportionately where positive NFE is not met), not until payment of duty occurring later by deliberate delay. Ratio vs. Obiter: Ratio - Depreciation for capital goods in the 100% EOU scheme must be computed up to the date of debonding/clearance (and at the rate in force on that date) in accordance with the Notifications; allowing depreciation to extend until actual payment of duty is not consistent with the Notifications where debonding/clearance is the operative event. Obiter - Remarks on consequences of litigation delay and policy considerations cautioning against interpretations that permit intentional delay to defeat revenue recovery. Conclusion: Depreciation is not to be allowed until the date of actual payment of duty where debonding/clearance has occurred or is mandated; instead depreciation must be allowed up to the date of debonding/clearance as per the Notifications and their provisos. The Commissioner's order allowing depreciation till the date of payment of duty is set aside and remitted for recalculation consistent with this approach. Issue 2 - Effect of failure to achieve positive NFE / export obligation on allowance of depreciation and duty calculation Legal framework: The Notifications provide that clearance or debonding of capital goods may be allowed on payment of duty on depreciated value and at the rate in force on the date of debonding/clearance if the unit has fulfilled the positive NFE criteria; in case of failure to achieve positive NFE the depreciation shall be allowed in the same proportion as the achieved portion of NFE. Precedent treatment: Tribunal and Coordinate Bench authorities have uniformly held that post-import conditions are continuing obligations and that failure to meet export obligations/NFE may result in loss or diminution of benefits; duty liability must be recalculated accordingly and depreciation adjusted proportionately to the extent of achieved NFE. Interpretation and reasoning: Applying the plain language of the Notifications, the Tribunal held that where export obligations/NFE are not fulfilled, the entitlement to full depreciation is constrained. The notification scheme expressly contemplates proportionate allowance of depreciation corresponding to the proportion of NFE actually achieved. Consequently, where achieved NFE is only a fraction of the required amount, depreciation must be allowed only to that extent and duty recomputed on the resultant depreciated value as on debonding/clearance. Ratio vs. Obiter: Ratio - On failure to fulfill positive NFE, depreciation is to be allowed only in proportion to achieved NFE and duty must be recomputed accordingly at the rate in force on debonding/clearance. Obiter - No relaxation of continuing conditions is permissible merely on grounds of sympathy or unforeseen circumstances; procedural fairness must be observed but substantive obligations remain enforceable. Conclusion: Where positive NFE/export obligations are not met, depreciation must be proportionately restricted in accordance with the Notifications and duty liability should be reworked out by the adjudicating authority on remand consistent with the proportion of NFE actually achieved. Disposition and remedial direction The Commissioner's order allowing depreciation until the date of payment of duty is set aside. The appeal is allowed by remand to the adjudicating authority for limited purposes: (a) to recalculate duty liability permitting depreciation only up to the date of debonding/clearance (or proportionately in case of failure to achieve positive NFE), and (b) to apply the rate in force on the date of debonding/clearance in accordance with the Notifications and their provisos.