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Issues: (i) Whether the customs demand could be sustained when the goods were de-bonded under an EPCG licence and the authorities sought to deny the benefit on the ground that second-hand capital goods were covered by paragraph 9.39 of the Handbook of Procedure (1997-2002). (ii) Whether the extended period of limitation and penalties under the Customs Act, 1962 were invocable.
Issue (i): Whether the customs demand could be sustained when the goods were de-bonded under an EPCG licence and the authorities sought to deny the benefit on the ground that second-hand capital goods were covered by paragraph 9.39 of the Handbook of Procedure (1997-2002).
Analysis: The de-bonding permission and the EPCG licence were both issued in the course of the export-oriented unit's conversion, and the record showed that the machinery in question was already installed capital goods. The customs authorities could not disregard or re-assess the EPCG licence granted by the competent DGFT authority. The reasoning also treated the licence and the de-bonding process as governing the applicable duty position, and not the mere description of the imported machinery as second-hand in the original EOU setup. On that basis, denial of EPCG benefit was not justified.
Conclusion: The demand could not be sustained on the merits; the assessee was entitled to the EPCG benefit and the customs demand failed.
Issue (ii): Whether the extended period of limitation and penalties under the Customs Act, 1962 were invocable.
Analysis: The demand was based on facts that were disclosed in the clearance and de-bonding proceedings, and the clearance had been effected under the EPCG licence. In the absence of suppression justifying the longer period, the extended limitation clause was not available. Once the demand itself was not sustainable on limitation, the associated interest and penalties also could not stand.
Conclusion: The extended period of limitation and the penalties were not invocable; the demand was time-barred.
Final Conclusion: The tribunal set aside the customs demand, interest, and penalties, and allowed the assessee's appeals.
Ratio Decidendi: Where de-bonding and clearance are governed by a valid EPCG licence issued by the competent authority, customs authorities cannot deny the licence benefit on their own, and the extended period of limitation requires legally sustainable suppression or evasion.
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