Depreciation in cases where NFE has not been achieved - Central Excise Practice Manual (OLD) - Central Excise

Depreciation in cases where NFE has not been achieved Para 6.15(b) and para 6.18(e) of FTP provide that depreciation in case of clearance or debonding of capital goods for disposal in DTA and exit from the scheme respectively is admissible only when the unit has achieved positive NFE taking into consideration of depreciation allowed. The notifications governing duty free import and procurement by EOUs have been suitably amended by notifications Nos. 60/2008-Customs and 26/2008-CE, both dated 05.05.2008 so as to allow clearance/ debonding of capital goods on the depreciated value proportionate to the NFE achieved by the unit which is arrived at after taking into consideration the rate of depreciation allowable on such capital goods. In case the unit has not achieved positive NFE in the above manner, the duty foregone at the time of import shall be paid on such value of goods in proportion to the non-achieved portion of NFE. This may be further explained by following example:- Supposing a unit imports a C.G and subsequently wants to clear it after 2 years of use. According to rate of depreciation, the unit is entitled for 32% depreciation. Hence the unit would be required to fulfill NFE 32% over and above its normal NFE requirement, If the unit s NFE achievement falls short, by say, 20%, then in such situation, only 12% depreciation would be allowed to the unit. Para 6.18(e) of the FTP has been amended so as to provide that in case of exit from EOU Scheme, the duty liability of the unit would be confirmed subject to the condition that the unit has achieved positive NFE taking into consideration allowed. The unit debonding prior to expiry of 10 years, the NFE will be calculated on the payment of foreign technical know-how and capital goods based on the rate of depreciation allowable on the goods. CBEC vide Circular No. 12/2008-Customs, dated 24-7-2008 has clarified rationale for calculation of NFE with rate of depreciation. Paragraph 6.10.4 of HOP , provides for amortization of the value of imported capital goods and payment of foreign technical know-how fee at the rate of 10% per year. The NFE earnings are calculated cumulatively in the block of five years in terms of Para 6.5 of FTP. Accordingly, the unit was able to achieve a positive NFE only by exporting 50% of value of the imported capital goods. On the other hand, 100% depreciation for computer and computer peripherals and 60% for other capital goods have been allowed in the period of five years. This implies that a unit achieving positive net foreign exchange earning only for the 50% of the value of capital goods in a period of five year though 100% depreciation on the value of computers and 60% depreciation on the value of other capital goods is allowed. Considering this, para 6.10.4 of HBP has been amended so that for a unit exiting prior to expiry of 10 years, the NFE would be calculated on the value of capital goods and payment of foreign technical know-how fee based on the rate of depreciation allowable on the goods. It has been clarified that departmental officers before issuing No-dues certificate for exit from the EOU scheme, would be required to ensure that the unit has achieved positive NFE taking into consideration the rate of depreciation allowable on the goods as explained above.