Depreciation on Capital Goods under EOU Scheme Allowed Only up to Date of Debonding, Not Till Duty Payment: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that depreciation on capital goods imported under the Export Oriented Unit (EOU) scheme is admissible only up to the date of debonding of the unit, and not up to the date of payment of duty.

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Blue Gold Maritech (International) Ltd, a 100 percent Export Oriented Unit in Nellore, Andhra Pradesh, had imported capital goods and raw materials without paying duty under Notification No. 188/1993-Cus dated 27 December 1993, and procured indigenous goods without excise duty under Notification No. 57/1994-CE and Notification No. 10/1995-CE.

The unit started production on 1 August 1996 but failed to meet the required Net Foreign Exchange (NFE) obligations, managing exports of only USD 6,58,965.89 in 1997, which was 1.37 percent of the prescribed requirement. No exports were made thereafter.

A show cause notice dated 27 June 2001 demanded duty on the imported goods and proposed confiscation. The matter went through several rounds of adjudication and remand. Finally, the Commissioner held that the company had failed to meet export obligations, but allowed depreciation on capital goods till the date of payment of duty. The Department challenged this decision before the Tribunal.

The Department’s counsel argued that under Notification No. 188/1993-Cus and subsequent amendments including Notification No. 196/1994-Cus and Notification No. 52/2003-Cus, depreciation can only be granted up to the date of debonding or clearance, not up to the actual date of duty payment.

They argued that allowing depreciation until payment would encourage delay and cause loss to the revenue. Reliance was placed on decisions such as RUIA Aquaculture Farms Ltd v. CCE, Lens Master International v. CCE, and Kedia Infotech Systems Ltd v. CCE.

No one appeared for the respondent company in the present proceedings.

The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that the only issue was whether depreciation should be allowed till the date of payment or only till the date of debonding.

The tribunal observed that the relevant notifications clearly provide depreciation only up to the date of debonding or clearance, and not up to the date of actual duty payment. The tribunal explained that accepting the interpretation of depreciation until duty payment would lead to unreasonable and absurd results by incentivizing delay in payment of duty.

The tribunal set aside the Commissioner’s order granting depreciation up to the date of payment and allowed the Revenue’s appeal. The matter was remanded to the adjudicating authority only for recalculating the duty by granting depreciation up to the date of debonding.

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