2008 (9) TMI 221 - AT - Customs

De-bonding of EOU failure to fulfil export obligation and failure to achieve value addition - dispute relating to value addition settled in appellant s favour by DGFT authorities held that customs authorities cannot overlook the quasi-judicial order of DGFT while deciding fulfillment of value addition norms held that duty cannot be demanded on input arrived on a Notional basis for meeting shortfall in export obligation held that appellant liable to pay duty on capital goods on W.D.V.

Summary

Issues:
1. Export obligation fulfillment and value addition norms under the 100% EOU scheme.
2. Dispute over duty demand, penalties, and confiscation of capital goods.
3. Determination of value addition and compliance with de-bonding requirements.
4. Application of EXIM policy, Customs Act, and relevant notifications.

Analysis:

1. Export Obligation and Value Addition Norms:
The appellant, a 100% EOU, faced challenges in fulfilling export obligations due to market conditions. The Commissioner demanded duty for alleged non-compliance with value addition norms. The appellant contended that the DGFT authorities had settled the value addition issue in their favor, achieving 49.22% value addition. The Tribunal noted the appellant's efforts to utilize duty-free materials for exports and found no diversion of goods. The Tribunal held that the value addition norms were satisfied based on the DGFT's final decision.

2. Duty Demand, Penalties, and Confiscation:
The Commissioner imposed duty demand, penalties, and confiscation of capital goods. The appellant argued against duty on raw materials for unfulfilled export obligations, which were legally unsustainable. The Tribunal set aside duty demands based on notional requirements and upheld duty payment on capital goods at the written down value of Rs. 22,18,075 as of 31-3-96. Confiscation of capital goods and penalties were deemed unjustified and set aside.

3. De-bonding Compliance and EXIM Policy Application:
The appellant prematurely opted out of the EOU scheme, leading to penalty payment. The Tribunal emphasized compliance with de-bonding requirements and EXIM policy conditions. It clarified that duty liability should be calculated as per policy provisions, and duty demands on hypothetical inputs were not permissible. The Tribunal ruled in favor of the appellant, setting aside duty demands based on notional requirements.

4. Application of Customs Act and Notifications:
The Tribunal highlighted the interlinked nature of the EOU scheme with EXIM policy and relevant Customs Act notifications. It emphasized the authorities' responsibilities in ensuring compliance with conditions, including value addition norms. The Tribunal underscored the need for coordination between DGFT and Customs authorities and upheld the DGFT's decision on value addition. The judgment focused on interpreting and applying the legal framework to determine duty liabilities and compliance with de-bonding requirements.

This comprehensive analysis addresses the key issues of export obligation fulfillment, value addition norms, duty demands, penalties, and compliance with de-bonding requirements under the 100% EOU scheme, providing a detailed overview of the Tribunal's judgment.