2001 (1) TMI 405 - AT - Central Excise

Summary

Issues:
Date for determination of depreciation in case of debonding of a 100% Export Oriented Unit.

Analysis:
In this case, the main issue revolves around determining the appropriate date for depreciation in the context of debonding a 100% Export Oriented Unit. The appellant had a unit where Polyester Film was manufactured, and upon realizing a decrease in export orders, applied for debonding. The dispute arose when the department alleged that the date of commercial production for depreciation calculation was incorrect, claiming it should be 19-7-1996 instead of 29-3-1996. The appellant argued that they had intimated commercial production starting from 29-3-1996 to the Secretariat of Industrial Approvals (SIA) and had entered goods in statutory records, supporting their claim of commercial production from that date.

The appellant's counsel referred to Circular No. 27/98 issued by the Central Board of Excise and Customs, stating that depreciation should be calculated from the date capital goods were put into the manufacturing process. They emphasized that as per the circular, since capital goods were utilized from 29-3-1996, depreciation should commence from that date. The appellant also cited a Supreme Court decision affirming the binding nature of Board's circulars on lower authorities, further supporting their argument for depreciation from 29-3-1996. The appellant contended that the quantity manufactured was irrelevant in determining commercial production, especially given the limited orders during that period.

On the other hand, the department argued that the production from 29-3-1996 was on a trial basis, as the quantity was minimal and did not reflect commercial production. They emphasized that the installed capacity was not utilized significantly, indicating trial production until 19-7-1996. The department highlighted the requirement to consider the date of commercial production as per the notification and the explanation provided, asserting that the circular cited by the appellant did not nullify this requirement.

The Tribunal analyzed the provisions of Notification No. 13/81 and Circular No. 27/98, noting that the latter clarified the date for depreciation calculation based on when capital goods were put into the manufacturing process. The Tribunal emphasized the binding nature of Board's circulars and instructions, citing Supreme Court precedents. They concluded that the date for depreciation should indeed be 29-3-1996, in line with the capital goods being utilized in the manufacturing process from that date. The appeal was allowed, granting consequential relief to the appellants as per the law.

In conclusion, the judgment clarifies the significance of the date of commercial production for determining depreciation in the context of debonding a 100% Export Oriented Unit. It underscores the importance of following Board's circulars, especially when they align with the provisions of relevant notifications. The decision highlights the need to consider the actual utilization of capital goods in the manufacturing process to ascertain the appropriate date for depreciation calculation, ultimately providing clarity on this crucial issue.