2015 (11) TMI 1430 - AT - Customs

100% EOU - duty payable on debonding - assessee had capitalized certain spare parts - revenue took the view that by this process, the value of the capital goods has increased and accordingly at the time of debonding, duty of ₹ 50,85,814/- should have been paid on this amount after 10% depreciation. - Interest u/s 28AB - Held that - Even though 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. - 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 10/04/04 and at that time also he had checked the account of receipt and consumption of the imported as well as indigenously procured spare parts - 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 19.02.2009 is time barred. - impugned order is not sustainable on merits as well as on limitation. The same is set aside - Decided in favour of assessee.

Summary

Issues:
1. Assessment of duty on spare parts capitalized during the period of 1996-97 to 2001-02.
2. Validity of duty demand and penalty imposed by the Commissioner.
3. Interpretation of the impact of capitalizing spare parts on the value of machinery during debonding.
4. Allegations of suppression of information by the appellant.
5. Application of the extended period under Section 28(1) of the Customs Act, 1962.

Analysis:
1. The appellant, a division of a company engaged in manufacturing denim fabrics, imported capital goods and spare parts duty-free during their existence as a 100% EOU. The dispute arose when the Department claimed duty payment on spare parts capitalized during 1996-97 to 2001-02. The Commissioner confirmed the duty demand and penalty, leading to the appeal.

2. The appellant argued that the spare parts were used up and not physically available at the time of debonding, hence no duty should be demanded. The Department contended that capitalizing spare parts led to double enrichment, increasing the value of machinery. The Tribunal analyzed the submissions and records to make a determination.

3. The Tribunal held that once spare parts were used to replace old machinery parts, they became part of the machinery and did not increase its value. Duty during debonding is payable on raw materials and depreciated capital goods, not on spare parts. The Tribunal noted that the appellant had not suppressed information, as the Inspector had checked their records during debonding, making the extended period invocation unjustified.

4. Consequently, the Tribunal found the impugned order unsustainable on both merit and limitation grounds. It set aside the order, allowing the appeal in favor of the appellant. The judgment emphasized that the duty liability could not be enhanced by the value of spare parts used for machinery maintenance, as they became part of the machinery and did not increase its value during debonding.