2017 (7) TMI 394 - AT - Central Excise

EPCG scheme - rate of duty on the capital goods/ spares pares procured indigenously - The case of the Revenue is that there is no specific Central Excise notification which provides exemption from payment of duty when cleared to unit availing EPCG scheme. The capital goods / spares parts which were originally procured duty free in terms of N/N. 22/2003-CE dated 31.03.2003 while setting up of EOU, would have to be debonded in terms of para 8(1) of the said Notification - Held that - Para 8 of the said Notification stipulates that no such clearance or debonding of capital goods under EPCG Scheme of Chapter 5 of Foreign Trade Policy shall be allowed if the user industry has not fulfilled the positive NFE criteria at the time of clearance or debonding in terms of para 6.18 (d) of the Foreign Trade Policy. Thereafter, the procedure for such clearance and method of calculation of depreciation are mentioned in the said Notification - Admittedly, in the present case, the appellant-assessee are entitled for debonding as they have achieved positive NFE. Accordingly, debonding was permissible in terms of the said Notification. It is to be noted that Notification No.22/2003-CE is for providing exemption to goods brought into EOU. This Notification does not provide any exemption to the capital goods, spare parts etc. for supply under EPCG Scheme. We are in agreement with the original authority regarding absence of any exemption Notification covering the situation as explained above, to support the claim of the appellant-assessee for an exemption from Central Excise duty. The rates applicable to any goods should have a clear legislative provision by way of rate in the tariff or by a supporting exemption notification - no specific exemption Notification could be cited by the appellant-assessee to claim exemption for the capital gods which are being debonded to avail EPCG Scheme. In such situation, we are not able to accept the claim of the appellant-assessee. The appellant assessee emphasised that the demand is not tenable as there is Revenue neutral situation resulting no addition to the Government revenue. We find that the concept of Revenue neutrality cannot be considered as a bar for non confirmation of tax dues, otherwise payable by the appellant assessee. If that be so, then in many of the cases the appellant themselves can choose whether to pay duty on goods or services, when the credit is available; or to pay duty only on final product. Such discretion is not vested with tax payer. The rate of duty on the depreciated value should be on the date of debonding under EPCG Scheme. We note that when the debonding is done in terms of Notification No.22/2003-CE, then the rates of depreciation as prescribed in the Notification has been correctly applied. Valuation - Capital goods - includibility - fire control system, water storage tank etc. - Held that - the items like cord can, fire control system, water storage tank etc. will fall within the scope of capital goods as understood in the trade parlance. Accordingly, the original authority allowed depreciation applicable to capital goods and dropped the demand for differential duty on this account. We are in agreement with the reasons recorded by the impugned order. EPCG scheme - the spare parts and accessories procured from domestic sources and also imported - eligibility - Held that - On analysis of the authorisation as well as nature of items as recorded in the impugned order, we are in agreement with the findings of the original authority regarding the eligibility of these items under EPCG Scheme. In the present appeal, the Revenue could not bring out any substantial issue either in fact or in law to interfere with the finding of the original authority. Penalty u/r 25 - Held that - It is clearly recorded that the appellant-assessee have not breached any of the provisions of Rule 25 of Central Excise Rules, 2004 as they have not removed the excisable goods in contravention of any of the Rules - penalty set aside. Appeal allowed - decided partly in favor of appellant.

Summary

Issues Involved:
1. Whether indigenously procured capital goods could be de-bonded under the EPCG scheme on payment of 3% duty instead of 14% excise duty.
2. (i) Whether depreciation is to be calculated based on rates prevailing on the date of debonding or on the date of receipt of the capital goods?
(ii) Whether certain items (like fire control systems, water storage tank, etc.) fall under the definition of capital goods and are eligible for depreciation?
3. Whether imported spare parts were included in the EPCG licence?

Detailed Analysis:

Issue 1: Whether indigenously procured capital goods could be de-bonded under the EPCG scheme on payment of 3% duty instead of 14% excise duty.
The original authority held that there is no Notification granting concessional rate of duty to EPCG units for procuring capital goods from DTA. The appellant-assessee argued that the EPCG scheme permits import of capital goods at 3% duty and that Notification No. 22/2003-CE allows debonding of capital goods under the Foreign Trade Policy. However, the Tribunal found that the claim was not supported by any exemption Notification issued by the Ministry of Finance. The Tribunal agreed with the original authority that there was an absence of any exemption Notification covering the situation, thus confirming the demand for differential duty on capital goods.

Issue 2: (i) Whether depreciation is to be calculated based on rates prevailing on the date of debonding or on the date of receipt of the capital goods? (ii) Whether certain items (like fire control systems, water storage tank, etc.) fall under the definition of capital goods and are eligible for depreciation?
The original authority decided in favor of the appellant-assessee, allowing depreciation based on the rates prevailing at the time of debonding and including items like fire control systems and water storage tanks as capital goods. The Tribunal upheld this decision, referencing the case of Pudumjee Plant Laboratories Ltd. vs. CCE, Pune-III, where it was held that the rate of duty on the depreciated value should be on the date of debonding under the EPCG Scheme. The Tribunal agreed with the original authority's detailed examination and interpretation of the Foreign Trade Policy, confirming that these items fall within the scope of "capital goods."

Issue 3: Whether imported spare parts were included in the EPCG licence?
The original authority decided in favor of the appellant-assessee, stating that the imported spare parts were included in the EPCG licence. The Tribunal agreed with this finding, noting that the original authority had provided categorical reasons for extending the benefit to these items. The Tribunal found no substantial issue either in fact or in law to interfere with the original authority's decision.

Additional Points:
The appellant-assessee argued that the demand for duty was not tenable due to revenue neutrality, as any duty paid would be available for credit. However, the Tribunal rejected this argument, stating that revenue neutrality cannot be considered a bar for confirming tax dues and that the availability of credit is subject to various conditions under the Cenvat Credit Rules, 2004.

The appellant-assessee also contended that the final debonding order issued by the Deputy Commissioner should preclude further demands. The Tribunal disagreed, noting that the debonding order was based on submissions and permissions granted by licensing authorities, and that the present proceedings were initiated after detailed scrutiny of documents.

The Revenue's appeal also contested the non-imposition of penalty under Rule 25. The Tribunal upheld the original authority's finding that the appellant-assessee had not breached any provisions of Rule 25 of the Central Excise Rules, 2004, as they had not removed excisable goods in contravention of any rules.

Conclusion:
The Tribunal upheld the impugned order, finding it to be in accordance with the law, and rejected the appeals filed by both the appellant-assessee and the Revenue.