2016 (2) TMI 360 - AT - Central Excise

Refund claim - higher rates of depreciation allowed - conversion from or exiting from Export Oriented Unit - Held that - The dispute is one of valuation i.e. the extent to which the original value should be reduced in acknowledgement of the use to which capital goods have been put for export of goods. The goods are not transferred to another entity and thus there is no transaction value. The residuary method of valuation cannot but take into account the time element in relation to goods that do not get integrated into the final product. Therefore depreciation does not require to be incorporated in a statute or statutory instrument for it to be extended when converting from or exiting from Export Oriented Unit. As long as a logical method of depreciation is adopted the valuation would be sustainable in law. For ensuring uniformity circulars of Central Board of Excise & Customs did prescribe rates of depreciation from time to time before the practice of incorporation in notifications was commenced in 2003. Rates of depreciation were prescribed in circular no 27/98-Cus dated 21st April 1998 and amended later by circular no 43/98-Cus dated 26 th June 1998.The impugned order while allowing the appeal of the respondent-assessee had accepted the contention in the application for refund adopting the rates found in the Handbook of Procedures of the relevant Foreign trade Policy. We find from above that the Central Board of Excise & Customs had also aligned its prescriptions accordingly in every circular relating to debonding. We therefore find no reason to interfere with the decision in the impugned order to allow the refund claimed by M/s RM Mohite Textiles Ltd - Decided in favour of assessee.

Summary

Issues:
1. Refund of excess duty paid on capital goods.
2. Eligibility for depreciation on capital goods.
3. Interpretation of relevant notifications and circulars.

Issue 1: Refund of excess duty paid on capital goods
The case involved a dispute over the refund of excess duty paid by the respondent, a textile company, on capital goods. The respondent had initially paid duty on capital goods valued at Rs. 13,65,15,680 after availing a 10% depreciation. Subsequently, they claimed a refund of Rs. 15,20,754, contending that they were eligible for a higher depreciation amount of Rs. 20,54,13,516. The original authority rejected the claim, but the first appellate authority granted relief to the respondent. The appellate tribunal noted the Foreign Trade Policy prevailing at the time of conversion and relevant notifications, ultimately upholding the appellate authority's decision to allow the refund.

Issue 2: Eligibility for depreciation on capital goods
The crux of the issue revolved around the eligibility of the respondent for depreciation on capital goods upon conversion from an Export Oriented Unit to an Export Promotion Capital Goods licensee. The respondent argued that they were entitled to depreciation based on the rates prescribed in the Handbook of Procedures of the Foreign Trade Policy, rather than the rates specified in the relevant notification. The tribunal analyzed the notifications, circulars, and legal provisions to determine the appropriate depreciation rates applicable to the case. Ultimately, the tribunal upheld the respondent's claim for higher depreciation rates, citing alignment with circulars issued by the Central Board of Excise & Customs.

Issue 3: Interpretation of relevant notifications and circulars
The tribunal delved into the interpretation of relevant notifications and circulars governing duty exemptions, depreciation rates, and conditions for conversion from an Export Oriented Unit to an Export Promotion Capital Goods licensee. The tribunal scrutinized the specific conditions laid down in the notifications and circulars to ascertain the applicability of depreciation rates and duty liabilities in the context of the respondent's case. By aligning the respondent's claim with the circulars issued by the Central Board of Excise & Customs and the Handbook of Procedures, the tribunal concluded that the refund claimed by the respondent was justified, thereby rejecting the appeal by the Revenue.

In conclusion, the appellate tribunal upheld the decision to allow the refund claimed by the textile company, emphasizing the correct application of depreciation rates and alignment with relevant circulars and notifications. The judgment provided clarity on the eligibility for depreciation on capital goods and the interpretation of legal provisions governing duty exemptions in cases of conversion from Export Oriented Units.