22nd April, 2015 : CESTAT Delhi : Century Yarn Vs C.C.E. & S.T. Indore
This case involves Century Yarn's (appellant) de-bonding (exit) from the 100% EOU Scheme. The condition for de-bonding is, various duty benefits claimed under the scheme has to be paid before the exit into DTA is allowed.
In this case, the duties payable on the "duty free" capital goods (imported and local) and inputs were quantified by the central excise authorities. A "no due certificate" was also issued by the Commissioner. Based on this, the Development Commissioner issued a final de-bonding order on 20.04.2004. After this, the appellant became a DTA unit.
Later, audit found that the appellants had capitalized spare parts which were added to the machinery (plant) during the earlier period. So on de-bonding an additional amount of Rs.5.09 mil ought to have been paid (after allowing 10% depreciation). Notice was issued on 19.02.2009 and demand confirmed with interest and penalty equal to duty under Section 114A of Customs Act.
The arguments for the appellant were :
- The spare parts which were worn and replaced right from from 1996-97 to 2001-02 were not physically available at the time of de-bonding
replacing old / worn out parts of the machinery does not enhance the value of the machinery.
- The spare parts were not in stock at the time of debonding, duty can be demanded only the stocks available at the time of de-bonding.
The Revenue argued that :
- The appellant capitalized the spare parts which means a double benefit of both duty exemption and depreciation on the value of the spare parts was claimed. When the parts are capitalized, the value has to be included.
- The appellant had suppressed the fact the spare parts were capitalized during 1996-97 to 2001-02 period and came to the knowledge of the Department only in audit. Since suppression of facts is involved, the longer limitation period is applicable.
The Tribunal concluded as under :
- There is no dispute that the imported duty free spare parts were used for replacement of the old parts during 1996-97 to 2001-02 period.
- Though these spare parts were capitalized the spare parts were used replacing the old and worn out parts and they become part of the machinery and lose their separate identity.
- The use of these spare parts for replacing the old and worn out parts of the machinery would not increase the value of the machinery.
- On de-bonding, the duty is payable on the value of the duty free raw materials and the depreciated value of the imported or indigenously procured capital goods.
the value of the capital goods cannot be enhanced with the value of spare parts used from time to time even they are capitalized.
- At the time of debonding, the Jurisdictional Officers after checking the records and stock had determined the duty liability and communicated in writing.
- In view of this, the appellant cannot be accused of suppression and there is no justification for invoking the extended period.