2018 (9) TMI 1387 - AT - Customs

100% EOU - eligibility for depreciation on capital goods in the computation of liability to duty upon failure to comply with prescribed export obligation - Held that - The goods had been imported without payment of duty in accordance with notification no. 13/81-Cus dated 9th February 1981 which, while binding the appellant to fulfill the conditions stipulated therein, could be invoked only upon exiting the scheme in the Export-Import Policy (now referred to as Foreign Trade Policy). On the issue of eligibility for full depreciation on capital goods, when subject to proceedings for failure to comply with prescribed export obligation, the Tribunal has, in Shriram Grape Growers Cooperative Society Ltd v. Commissioner of Central Excise & Customs, Nasik 2018 (3) TMI 205 - CESTAT MUMBAI hes held that As on the date of the impugned order, the appellant has been in existence for over a decade and, by application of the straight-line depreciation approved by the Central Board of Excise & Customs, the value of capital goods would be nil. Consequently, no duty liability would arise. The annual export obligation is a function of the cost of inputs and the depreciation for the year; thus the value of the imported machinery is compensated by exports over a period of 10 years and any shortfall in any of those years, attributable to mismatch with the amortisation for the year, would result in recovery of proportionate duty for that year. Disallowance of depreciation, in these circumstances, to the full extent would be tantamount to recovery of tax/duty in excess of that which has foregone. The appellant is entitled to depreciation up to the date of payment of duty and, which being more than ten years, to the full extent. Consequently, there is no duty liability and other detriment action would also fail to sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of demand of duty, imposition of penalty under Customs Act, 1962, exclusion of period for depreciation, eligibility for full depreciation on capital goods, compliance with export obligation, recovery of proportionate duty, clarification on depreciation by Central Board of Excise and Customs.

Confirmation of demand of duty and imposition of penalty under Customs Act, 1962:
The appeal pertained to the confirmation of demand of duty amounting to &8377; 16,21,875/-, with interest, and imposition of penalties under sections 112(b)(ii) and 117 of the Customs Act, 1962. The appellant, a 100% export-oriented unit, had imported automatic hand glove manufacturing machines in 1989, on which duty had been foregone. The Commissioner found a failure in fulfilling the export obligation prescribed in the Letter of Permission issued by the Government of India. The Tribunal noted the findings of the original authority and the contentions of both parties.

Exclusion of period for depreciation:
The contention was regarding the exclusion of the period between 'in principle' debonding and payment of duty from the period allowed for depreciation. The appellant argued that the original authority erred in excluding this period and cited precedent decisions of the Tribunal and circulars permitting depreciation without any cap on capital goods imported under the export-oriented unit scheme. The Tribunal analyzed the provisions of the notification and relevant circulars to determine the period for depreciation.

Eligibility for full depreciation on capital goods and compliance with export obligation:
The issue revolved around the eligibility for full depreciation on capital goods when facing proceedings for non-compliance with the prescribed export obligation. The Tribunal referred to a previous judgment where it was established that duty liability on capital goods is erased over time. The appellant's functioning as an export-oriented unit since 1992 was considered, and it was concluded that no duty liability would arise due to the depreciation of capital goods over the unit's existence. The Tribunal highlighted the obligation to be 'net foreign exchange positive' and the matching of exports with the amortized value of capital goods over ten years.

Recovery of proportionate duty and clarification on depreciation by Central Board of Excise and Customs:
The Tribunal examined the reasoning behind allowing full depreciation on capital goods and the implications of disallowing depreciation in the context of recovering tax/duty. It referenced a circular by the Central Board of Excise and Customs clarifying that depreciation should be allowed up to 100% till the date of payment of duty. The Tribunal, based on the facts and binding decisions, held that the appellant was entitled to depreciation up to the date of payment of duty, and since it exceeded ten years, full depreciation was allowed. Consequently, the impugned order was set aside, and the appeal was allowed.