2022 (10) TMI 511 - AT - Central Excise

100% EOU - calculation of Central Excise duty and Customs duty on the depreciated value of the capital goods - While computing the depreciation for the last part of the quarter whether the appellant was allowed to avail depreciation only for the part of the quarter or for the entire quarter? HELD THAT - Explanations to paragraph 8 of the Central Excise notification and paragraph 4 of the Customs Notification clearly state that for the purpose of computing rate of depreciation for any part of a quarter, a full such quarter shall be taken into account. The show cause notice and the impugned order relied on CBEC Circular No. 14/2004-Cus. dated February 13, 2004 to hold that the appellant was entitled to take depreciation only for part of the quarter and not for the entire quarter. A perusal of the circular clearly shows that it was not dealing that the question as to how to treat a part of the quarter for the purpose of reckoning the depreciation. The audit team, the show cause notice, the order of the lower authority and the impugned order of the Commissioner (Appeals) have misread this circular to infer that part of the quarter cannot be taken as the complete quarter for the purpose of calculating the depreciation. Clearly such is not the case and the circular does not say so. Even otherwise, the CBEC circular is an administrative order binding on the departmental officer but it cannot prevail over on delegated legislation in the form of an exemption notification. When the notification itself has allowed depreciation for the entire quarter the circular cannot restrict it to part of it. Therefore, the impugned order cannot be sustained. Appeal allowed.

Summary

Issues:
- Calculation of depreciation for a 100% Export Oriented Undertaking (EOU) unit that opted out of the EOU scheme.
- Interpretation of the notifications regarding the calculation of depreciation for capital goods.
- Applicability of CBEC Circular No. 14/2004-Cust dated 13.02.2004 in determining depreciation.
- Validity of the demand for Central Excise duty and Customs duty along with penalty.

The judgment revolves around an appeal filed by M/s Skipperseil Limited (Unit-II) against the order-in-appeal passed by the Commissioner (Appeals), Jaipur, confirming a demand of Rs. 84,255/- and an equal penalty imposed by the Assistant Commissioner. The appellant, a 100% EOU manufacturing transformers, opted out of the EOU scheme and converted its unit into an ordinary unit. The dispute arose regarding the calculation of depreciation for capital goods after debonding. The notifications specified the rate of depreciation and allowed depreciation for the entire quarter. The appellant contended that the depreciation should be computed for the full quarter, relying on case laws and challenging the reliance on CBEC Circular No. 14/2004-Cust. The lower authorities misinterpreted the circular, leading to the demand for Central Excise duty and Customs duty, which was upheld by the Commissioner (Appeals).

The Tribunal analyzed the notifications specifying the method of calculating depreciation for capital goods of a debonded EOU unit. The explanations in the notifications clearly stated that depreciation for any part of a quarter should be computed considering the full quarter. The impugned order relied on CBEC Circular No. 14/2004-Cust to restrict depreciation to part of the quarter, which was a misinterpretation. The circular did not address the treatment of a part of the quarter for depreciation calculation. The Tribunal emphasized that the circular, being an administrative order, cannot override the notifications. Since the notifications allowed depreciation for the entire quarter, the circular could not limit it to part of the quarter. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the demand for Central Excise duty and Customs duty, along with the penalty, was not sustainable. The misinterpretation of the notifications and reliance on the circular led to an incorrect calculation of depreciation. By clarifying that depreciation should be computed for the full quarter as per the notifications, the Tribunal provided consequential relief to the appellant by setting aside the impugned order.