2009 (7) TMI 333 - AT - Customs

100% EOU Depreciation on capital goods - Duty demand of Rs. 37,107/- has been confirmed against the appellants herein on clandestine removal of 20 nos. of computers which were not used in or in relation to the manufacture of final products. A penalty of Rs. 40,000/- has also been imposed. - The finding that no depreciation would be available to the appellants since the 20 nos. of computers were not used in or in relation to manufacture is based upon the fact that the Range Officer vide letter dated 25-6-1998 has clearly reported that 35 computers were in use in the appellant s factory and 20 nos. were kept in stores. This leads to the automatic conclusion that the 20 nos. of computers were not actually put into use. held that demand is sustainable - However, we set aside the penalty imposed upon them as we note that the Development Officer has granted permission for removal of goods subject to the condition of adherence to value-addition stipulated in their letter of permission issued by Secretariat of Industrial Approval, New Delhi and subject to observance of Customs/Central Excise formalities and value-addition has been admittedly achieved by them and non-observance of formalities was the only condition violated by them

Summary

Issues: Duty demand on clandestine removal of computers, availability of depreciation, penalty imposition

In this judgment by the Appellate Tribunal CESTAT, CHENNAI, a duty demand of Rs. 37,107/- was confirmed against the appellants for clandestine removal of 20 computers not used in or in relation to the manufacture of final products. A penalty of Rs. 40,000/- was also imposed. The appellants contended that the computers were not actually put into use, as reported by the Range Officer, and therefore, no depreciation should be available to them. The Board's Circular dated 15-4-1987 stipulated that depreciation is permissible only for capital goods used during the export obligation period. The appellants admitted in their letter that the computers were kept idle in stores. The Tribunal upheld the duty demand, citing the non-usage of computers, but set aside the penalty as value-addition was achieved, and the only violation was non-observance of formalities. The Tribunal found that the penalty was not warranted in this case.

The Tribunal's decision was based on the fact that the 20 computers were not utilized in the manufacturing process, as confirmed by the Range Officer's report and the appellants' admission. The Board's Circular further supported the denial of depreciation for idle capital goods in the case of 100% EOU like the appellants. The permission granted by the Development Officer for goods removal was subject to adherence to value-addition requirements and customs formalities, both of which were met by the appellants. The Tribunal considered the violation of formalities as the sole reason for setting aside the penalty, as value-addition had been achieved. Therefore, the penalty imposition was deemed unwarranted.

Overall, the appeal was partly allowed by the Tribunal. The duty demand was upheld due to the non-usage of computers in manufacturing, while the penalty was set aside based on the fulfillment of value-addition requirements and the violation being related only to formalities. The decision highlights the importance of complying with customs and excise formalities even when value-addition targets are met to avoid penalties.