2015 (1) TMI 1031 - AT - Customs

100% EOU - Valuation of goods - Enhancement in value of machinery - Extended period of limitation - Held that - Appellant unit during its existence as a 100% EOU had imported free of customs duty certain spare parts for machinery and there is no dispute that these spare parts were used for replacement of the old and worn out machinery parts during January 2001 to May 2001 period. Even though these spare parts have been capitalized, in our view once the spare parts have been used for replacement of the old and worn out machinery parts, the same become part of the machinery and they loose their separate identity. The use of these spare parts for replacing the old and worn out parts of the machinery would not increase the value of the machinery. At the time of debonding, the duty is payable on the value of the duty free raw materials and the depreciated value of the imported or indigenously procured capital goods and for this purpose, the value of the capital goods cannot be enhanced by the value of the spare parts used from time to time, even if the same have been capitalized. It is also seen that at the time of debonding, the Jurisdictional Inspector, Central Excise, after checking their records and stock, had determined the appellant's duty liability and had communicated the same under his letter dated 09/04/04 and at that time also he had checked the account of receipt and consumption of the imported as well as indigenously procured spare parts. In view of this, the appellant cannot be accused of suppressing the relevant information from the Department and, therefore, no justification for invoking the extended period under proviso to Section 28 (1) of the Customs Act, 1962 and, as such, the show cause notice dated 03/10/07 is time barred. - Decided in favour of assesse.

Summary

Issues:
1. Assessment of customs duty on capitalized spare parts used for machinery during the debonding process.

Analysis:
The appellant, a division of a company engaged in manufacturing denim fabrics, was earlier a 100% EOU and later debonded to become a DTA unit. The issue arose when the Department demanded customs duty on spare parts valued at Rs. 75,75,268, which were capitalized during January 2001 to May 2001 for replacing old machinery parts. The Department contended that duty should have been paid on the increased value of capital goods at the time of debonding. The Commissioner confirmed the duty demand, interest, and penalty, leading to the appeal.

During the hearing, the appellant's counsels argued that the spare parts were not physically available at the time of debonding, as they had been used up earlier. They emphasized that replacing old parts with new spare parts did not increase the machinery's value. On the other hand, the Departmental Representative defended the duty demand, claiming double enrichment due to capitalization of spare parts and availing customs duty exemption. The Department alleged suppression of facts by the appellant, justifying the extended limitation period.

After considering both sides, the Tribunal held that once spare parts were used to replace old machinery parts, they became part of the machinery, losing their separate identity. Therefore, the value of machinery did not increase due to spare parts replacement. The duty payable at debonding was based on raw materials and depreciated capital goods' value, not spare parts. The Tribunal noted that the appellant's duty liability was determined by the Jurisdictional Inspector during debonding, who checked the spare parts consumption. Consequently, the appellant was not accused of suppressing information, and the extended limitation period was unjustified.

In conclusion, the Tribunal found the impugned order unsustainable on both merit and limitation grounds. The order demanding customs duty, interest, and penalty was set aside, and the appeal was allowed.