The Supreme Court of India has clarified that where an importer assessee has availed a 100 per cent exemption from paying customs duty for the import of capital goods but failed to fulfil its export obligations stipulated by the Development Commissioner under the exemption policy and sold products outside the Domestic Tariff Area (DTA), then the assessee is liable to pay customs duty based on the proportion of export commitments fulfilled. The duty payable shall not be based on the depreciated value of the total capital goods subjected to the customs duty.
The issue involved the Commissioner of Customs Bangalore as the appellant and M/S. Shiva Analyticals (India) Limited as the respondent.
The respondent company had availed 100 per cent customs duty exemption under the condition that it must fulfil export obligations set by the Development Commissioner and ensure that the final products are not sold outside the DTA without maintaining a positive Net Foreign Exchange (NFE).
However, the respondent fell short of meeting its export obligations, reaching only Rs. 3,89,87,054 out of the stipulated Rs. 20,73,75,000. Furthermore, they violated the condition by selling products worth Rs. 9,41,89,191 outside the DTA.
This led to a show cause notice being issued, eventually resulting in the imposition of a huge customs duty amounting to Rs. 1.54 Crores and a corresponding interest amount.
The respondent appealed this decision to the assessed tax authorities. The order partly allowed their plea and directed the adjudicating authority to consider the liability while taking into account the depreciated value of the capital goods subjected to the customs duty.
The appellant revenue, Commissioner of Customs Bangalore was represented by Mr. Rupesh Kumar, Mr. V.C.S. Bharathi, Mr. H.R. Rao, Ms. Nisha Bagchi, Ms. Ruchi Gour Narula, Ms. Sunita Singh and Mr. Mukesh Kumar Maroria while the respondent, M/S. Shiva Analyticals (India) Limited was represented by Dr. Shamsuddin, Mr. Shibu Devasia Olickal, Ms. Beena Victor, Mr. Anup Kumar Pandey, Mr. Shishir Pandey, Mr. Jogy Scaria, Mr. G V Chandrashekar, Mr. N K Verma, Ms. Apeksha D and Ms. Anjana Chandrashekar.
The appellant revenue contended that customs duty liability shall be calculated taking into account the depreciated value of the capital goods subject to customs duty.
The Supreme Court held that for the purpose of calculating customs duty and interest, the respondent should be given the benefit based on the valuation of exports already made, amounting to Rs. 3,89,87,054, which is not disputed.
The bench emphasised that the extent of export commitments fulfilled by the respondent should be a key consideration in determining the duty liability component and the interest payable.
The Supreme Court modified the order, replacing the depreciated value with a proportionate valuation, considering the export commitments fulfilled by the respondent. The appeal was partly allowed under these terms, and pending applications, if any, were disposed of accordingly.
In summary, the two-Judge Bench comprising Justice S. Ravindra Bhat and Justice Aravind Kumar ruled that the customs duty payable by M/S. Shiva Analyticals (India) Limited would be based on the export commitments they had fulfilled, which amounted to Rs. 3,89,87,054. The court reasoned that the export commitments were the critical factor in determining the duty liability and interest payable and that the appellant should receive the benefit of this fulfilment.
The decision clarified the methodology for calculating customs duty and interest in cases where export obligations have not been entirely met. Instead of a blanket application of depreciated values, the Supreme Court’s approach takes into account the actual exports accomplished by the company.
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