2019 (1) TMI 1188 - AT - Customs

100% EOU - warehousing of goods - completion of warehousing period - failure to fulfill export obligation - N/N. 13/81-Cus dated 9th February 1981 read with N/N. 53/97-Cus dated 3rd June 1997 - Held that - The export oriented unit scheme has undergone changes over a period of time and, more significantly, during the tenor of the letter of permission of the appellant. The amending notifications issued under Customs Act, 1962 and Central Excise Act, 1944 superceded, and substituted, the existing notifications. Hence, the condition subject to which the goods were imported were not the same for the respective years of evaluation for compliance to determine the continuance of the privilege of duty exemption on capital goods and recovery of duties. We hold that the duty liability, if any, should be with reference to N/N. 52/2003-Cus. In the present dispute, the proceedings appear to have originated with completion of the period of warehousing which should be applicable only if warehoused goods were never put to use and, on completion of the warehousing period, the duty liability would be computed on value as assessed originally without benefit of depreciation. In the present circumstances, owing to utilization, depreciation is not deniable. The depreciation over the entire tenor would result in nil value for the purpose of assessment. Accordingly, the finding on the duty liability of the capital goods is not correct in law. The demand of duty and imposition of penalty is without the authority, and support, of law - appeal allowed - decided in favor of appellant.

Issues:
1. Confirmation of recovery of duties of customs and central excise under specific provisions.
2. Failure to fulfill export obligation due to natural causes affecting the industry.
3. Application of provisions at the time of debonding versus changes in the scheme.
4. Compliance with export obligation prescription for export-oriented units.
5. Duty liability on capital goods and machinery under specific circumstances.
6. Authority of demand for duty and imposition of penalty.

Issue 1: Confirmation of recovery of duties of customs and central excise under specific provisions

The judgment involves an appeal against an order confirming the recovery of duties of customs and central excise. The appellant, a 100% export-oriented unit, imported capital goods and procured indigenously manufactured goods under specific notifications. The production commenced in 1992, but the actual exports did not meet the required value. The duty liability was calculated based on the unfulfilled export obligations, leading to the demand for recovery of duties.

Issue 2: Failure to fulfill export obligation due to natural causes affecting the industry

The appellant argued that their failure to fulfill the export obligation was due to natural causes affecting the industry as a whole. They highlighted changes in the Foreign Trade Policy and sought the application of provisions existing at the time of debonding. The appellant contended that the failure to accord the benefit of depreciation and premature proceedings related to capital goods were issues that affected the proceedings.

Issue 3: Application of provisions at the time of debonding versus changes in the scheme

The judgment discusses the changes in the export-oriented unit scheme over time, especially in relation to the export obligation prescription. It emphasizes the need to consider the provisions applicable at the time of debonding and how subsequent amendments in notifications impacted the duty liability on imported goods. The court held that the duty liability should be determined with reference to the relevant notification in force at the time.

Issue 4: Compliance with export obligation prescription for export-oriented units

The judgment clarifies the conditions attached to the export-oriented unit scheme under the Foreign Trade Policy, requiring compliance with export obligations for duty exemptions. It outlines the evolution of the scheme, particularly in terms of export obligations based on net foreign exchange outflow. Non-compliant units face proceedings for duty recovery on raw materials and capital goods proportionate to the unfulfilled export obligations.

Issue 5: Duty liability on capital goods and machinery under specific circumstances

The court analyzed the duty liability on capital goods and machinery, especially in cases where exports do not match the value of inputs consumed. It discussed the calculation of duty on capital goods based on unfulfilled export obligations and the depreciation of machinery over time. The judgment emphasized the application of depreciation rules and the duty liability on machinery at the time of debonding.

Issue 6: Authority of demand for duty and imposition of penalty

The court concluded that the demand for duty and the imposition of penalties were not supported by law in the present case. It held that the duty liability on capital goods and machinery should be determined in accordance with the applicable notifications and depreciation rules. Consequently, the impugned order was set aside, and the appeals were allowed.

(Pronounced in Court on 17/01/2019)

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