2005 (9) TMI 165 - AT - Central Excise

Imported capital goods without payment of duty - valuing the goods at the original purchase price i.e. without allowing any depreciation - EOU - Licence - Cancellation of Letter of Permission (LOP) - quantum of duty payable on capital goods - Duty demand in regard to the goods removed under bond for export - fine and penalty - Liability to pay interest - HELD THAT - Depreciation is almost a rule of nature. Business accounting invariably provides for it. Thus, the appellant's claim for depreciation is in terms of common practice. Whether de-bonding of old equipment was in terms of permission or not, should not affect depreciation. Since LOP has been cancelled, the appellant cannot continue as EOU and has to de-bond the capital goods and pay customs duty. It is also noted that depreciation up to 90% on straight line method remains approved in the Circulars of the Board. In these circumstances, the duty payable by the appellant on the capital goods would be the amounts indicated above. Duty demand made in excess of the said amounts in the impugned order is not sustainable. Duty demand in regard to the goods removed under bond for export - As noted, the original papers relating to exporter are not available. The appellant had contended that these had been submitted before the jurisdictional authorities and the authorities disowned receipt. It is in this context that Tribunal directed to determine the dispute based on collateral evidence. Clearly, it was improper on the part of the Commissioner to reject the claim after merely noting that original papers are not available. As already discussed, the documents produced satisfactorily bring out that goods were cleared under bond and they were placed on board of the vessel. Subsequent banking correspondence with the Chemical Bank, New York (purchaser's bank) and the RBI and SBI (seller's bank.) indicate that payment was in relation to the same goods. In these circumstances, we feel that duty demand made on the disputed export consignment was not justified. Quantum of fine and penalty to be imposed - As we have noted, the current duty liability on the appellant is less than Rs. 8 lakhs. It is also on record that the appellant had carried out manufacture and exported during the period of its functioning as an E.O.U. There is no evidence of clandestine manufacture or sale of the goods in the domestic market without payment of duty by unauthorised use of non-duty paid capital goods or imported raw materials. In view of this, we are of the opinion that penalty of Rs. 2 lakhs (rupees two lakhs) and an equal amount towards fine would be sufficient in the facts of the case. Liability to pay interest - The submission of the learned Consultant is that it is well settled that when goods are confiscated, redeeming of the same would be on discharge of duty liability in terms of Section 125(2) of the Customs Act. Therefore, the question of interest liability cannot arise. He has relied upon the Apex Court's judgment in the case of Commissioner of Customs (Import), Mumbai v. Jagdish Cancer Research Centre 2001 (8) TMI 113 - SUPREME COURT . It is the contention of the learned SDR that judgment of the Hon'ble Supreme Court could not apply to the present case since the imported goods were originally cleared against bond. We are not able to agree with the Revenue on this. Upon confiscation, goods belong to the Government and liabilities for fine and duty arise only if a person who has been given the option to redeem the goods exercises it. Therefore, the question of interest cannot arise in the case of confiscated goods. The demand for interest under the impugned order is also not sustainable. Thus, we confirm the duty liability, fine and penalty as indicated above. The appeal is ordered in these terms.

Issues:
1. Valuation of capital goods and duty payable.
2. Duty demand on goods removed under bond for export.
3. Quantum of fine and penalty.
4. Liability to pay interest.

Analysis:
1. The first issue pertains to the valuation of capital goods and the duty payable. The appellant, an EOU, imported and procured capital goods without duty payment but failed to fulfill the conditions of the Letter of Permission (LOP) upon ceasing production and export. The dispute revolves around the quantum of duty payable on these goods and the denial of depreciation by the Customs authorities. The appellant claimed depreciation in line with common business practice and relevant circulars allowing up to 90% depreciation on a straight-line method. The Tribunal held that depreciation should be allowed, and duty demand exceeding the calculated amounts was unsustainable.

2. The second issue concerns the duty demand on goods cleared under bond for export. The dispute arose from the absence of proof of export within the specified time frame, leading to a demand of Rs. 23,79,369. The Tribunal directed a re-examination based on collateral evidence of export, as original documents were unavailable. Despite the Commissioner rejecting the appellant's claim due to missing original papers, the Tribunal found the collateral evidence produced by the appellant, such as shipping documents and banking correspondence, sufficient to establish export. Consequently, the duty demand on the disputed export consignment was deemed unjustified.

3. The third issue involves determining the quantum of fine and penalty. The Tribunal confirmed the liability for fine and penalty based on a previous order, which had become final as the appellant did not challenge it. Considering the appellant's compliance during its EOU functioning and the absence of evidence of unauthorized activities, a penalty of Rs. 2 lakhs and an equal amount as a fine were deemed sufficient.

4. The final issue pertains to the liability to pay interest. The appellant argued that interest liability does not apply when goods are confiscated and redeemed upon discharging duty liability, citing relevant legal precedents. The Tribunal agreed, stating that interest does not arise in the case of confiscated goods, as liabilities for fine and duty arise only upon redeeming the goods. Therefore, the demand for interest under the impugned order was deemed unsustainable. Ultimately, the Tribunal confirmed the duty liability, fine, and penalty as indicated, ruling in favor of the appellant in the specified terms.

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