2008 (12) TMI 574 - AT - Central Excise

Summary

Issues:
1. Eligibility of air conditioners as capital goods under Notification No. 1/95-C.E.
2. Application of depreciation on computer peripherals and air conditioners for a 100% EOU under STP scheme.
3. Dispute over Excise Duty payment on depreciated value.
4. Interpretation of Circular No. 289/5/97-CX regarding air conditioners.

Issue 1: The main issue in this case revolves around the eligibility of air conditioners as capital goods under Notification No. 1/95-C.E. The respondent, a 100% EOU engaged in software development, applied for de-bonding of air conditioners and computer peripherals. The original authority dropped proceedings demanding Excise Duty, citing the usage of equipment for creating environmentally controlled conditions essential for software development. The learned Commissioner (A) upheld this decision, emphasizing the necessity of air conditioners for the manufacturing process. The Circular No. 289/5/97-CX clarified that air conditioners essential for production by EOUs should be treated as capital goods, supporting the respondent's position. Another assessee's case where relief was granted further solidified this interpretation, leading to the rejection of the revenue's appeal.

Issue 2: The respondent availed 90% depreciation on computer peripherals and 60% depreciation on air conditioners. The revenue raised an audit objection, contending that air conditioners were not declared as capital goods under Notification No. 1/95-C.E., thus challenging the depreciation benefit. Circular No. 698/14/2003-CX suggested raising protective demands until the issue is resolved. The learned SDR argued for the continuation of protective demands until the matter is clarified, highlighting the ongoing dispute over the depreciation eligibility of air conditioners.

Issue 3: The dispute also involved the Excise Duty payment on the depreciated value of the air conditioners and computer peripherals upon de-bonding. The revenue demanded additional duty based on the short representation of the assessable value, leading to proceedings that were eventually dropped by the original authority. The revenue's appeal was based on the C & AG's audit objection, emphasizing the need for protective demands until the issue is resolved, despite the original authority's decision in favor of the respondent.

Issue 4: The interpretation of Circular No. 289/5/97-CX played a crucial role in determining the eligibility of air conditioners as capital goods. The circular clarified that air conditioners necessary for manufacturing by EOUs should be considered capital goods, aligning with the respondent's argument. The settled position of the law, as evidenced by previous decisions and circulars, supported the respondent's claim and led to the rejection of the revenue's appeal, upholding the original authority's decision.