2005 (3) TMI 175 - AT - Central Excise

Summary

Issues:
Duty demand on capital goods and inputs received duty-free by the appellant. Premature duty demand and imposition of penalty by the Development Commissioner. Continuation of the appellant as an Export Oriented Unit (EOU) and waiver of pre-deposit of duty demand.

Analysis:
The appellant, a 100% Export Oriented Unit (EOU) engaged in yarn manufacture and export, faced a duty demand of approximately Rs. 66 crores for not meeting Export Performance criteria under the Export-Import Policy from 1995-96 to 2000-2001. The bulk of the demand, around Rs. 56 crores, pertained to capital goods. The appellant argued that no duty demand should have been raised as they used machinery and inputs solely for export production, meeting Net Foreign Exchange Performance criterion. They highlighted that the quantity of exports depends on international factors and sought time from the Director General of Foreign Trade (DGFT) to fulfill Export Performance requirements, which had not been refused. The appellant was not declared a non-EOU. The learned SDR supported the duty demand citing a penalty imposed by the Development Commissioner for Export Performance shortfall.

The Tribunal found the duty demand premature and excessive for an EOU. Duty liability arises only upon de-bonding and conversion to a Domestic Tariff Area unit, which had not occurred in the appellant's case. The appellant remained an EOU, with no declaration of cessation by DGFT or opt-out from the scheme. Duty on capital goods should be based on depreciated value upon conversion, not the original value as demanded. Similarly, there was no diversion of inputs from export production. Consequently, the Tribunal waived the pre-deposit of duty demand and stayed its recovery pending appeal disposal. The appellant's strong case on merits supported this decision.

This judgment clarifies the obligations and rights of Export Oriented Units regarding duty demands, conversion to Domestic Tariff Area units, and the importance of meeting Export Performance criteria under the Export-Import Policy. It emphasizes the need for proper assessment of duty liabilities based on the status of the unit and the actual use of capital goods and inputs for export production.