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Issues: Disallowance of depreciation for idle period of machinery imported into India.
In this case, the appellant undertook a construction project in Kuwait and purchased machinery, including two pipe layers and a crane, which were later moved to Saudi Arabia. The machines were imported into India after remaining idle for two years and nine months. The Collector allowed depreciation for only three months of actual use, denying depreciation for the idle period. The appellant contended that depreciation should have been allowed for the entire three years until import. The dispute centered on whether depreciation could be granted for the idle period or only for the period of actual use. The appellant produced certificates from Chartered Engineers indicating the depreciated and current values of the machines, but the Collector based the depreciation calculation on the purchase price. The appellant argued that depreciation should be granted for the entire period of ownership, while the Department contended that depreciation could only be allowed for the period of actual use, not for the idle period. The Tribunal considered various legal precedents, including decisions under the Income-tax Act, to determine the principles governing depreciation. It was noted that the purpose of allowing depreciation under the Income-tax Act may not align with the customs law's objective of determining the ordinary price in international trade. The Tribunal emphasized that the focus should be on finding the ordinary price in international trade, not solely relying on technical rules from the Income-tax Act. Depreciation was discussed in the context of diminished value due to wear and tear, non-use, or obsolescence. The Tribunal acknowledged that the value of goods could diminish during idle periods, but the extent of depreciation would vary based on factors such as the nature of the goods and maintenance. It was recognized that there cannot be a uniform rule applicable to all situations regarding depreciation during idle periods. The Tribunal found that the Collector erred in restricting depreciation to the three months of actual use and in applying the wrong depreciation rate. It held that depreciation should be allowed for the entire three-year period but at a reduced rate of 15% instead of the 16% initially applied. The decision was made based on the circumstances of the case and the nature of the machinery. Consequently, the impugned order was modified, and the appeal was allowed to the extent of granting 15% depreciation for the idle period of the imported machinery.
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