2025 (5) TMI 1745 - AT - Central Excise

Demand along with interest and to impose penalty - excess grant of depreciation on the imported capital goods - whether date of commercial production be treated as 23.03.2004 or 27.11.2004 when the first export was made by the appellant - HELD THAT - From the records we find that the Development Commissioner has issued the letter on 04.03.2005 certifying that the said unit started commercial production on 23.02.2004. It is clear that as certified by the Development Commissioner who is the controlling authority of the appellant s unit has certified that commercial production has started on 23.03.2004 therefore the same be treated as 23.03.2004. If the date of commercial production is taken as 23.03.2004 then no demand is sustainable against the appellant and the appellant has correctly calculated the depreciation available to them. In that circumstances no amount is recoverable from the appellant therefore whole of the demand is set aside. As no demand is sustainable against the appellant therefore no penalty can be imposed on the appellant. In view of this we set aside the impugned order and allow the appeal with consequential relief if any.

Summary

The primary legal issue considered by the Tribunal is whether the date of commencement of commercial production for the appellant's unit should be recognized as 23.03.2004, as certified by the Development Commissioner, or 27.11.2004, the date when the first export was made by the appellant. This determination is critical because it affects the calculation of depreciation on imported capital goods and the consequent demand raised by the department for alleged excess claim of depreciation.

The relevant legal framework includes the provisions of the Export and Import Policy 2002-2007, particularly para 6.6(a), which governs the timeline for commencement of commercial production under the Export Oriented Unit (EOU) scheme. The Development Commissionerate's role as the controlling authority to certify the date of commercial production is also central. Additionally, the Foreign Trade Policy 2009-14 provisions concerning de-bonding and conversion of EOU units to Domestic Tariff Area (DTA) units, along with applicable Central Excise and Customs laws relating to duty payment and depreciation claims on capital goods, form the statutory backdrop.

The appellant obtained the Letter of Permission (LOP) on 20.08.2002 and commenced commercial production on 23.03.2004, as per their communication to the Development Commissioner and submission of Annual and Quarterly Progress Reports certified by a Chartered Accountant. The Development Commissioner accepted these reports without raising discrepancies and issued a certificate dated 04.03.2005 confirming the commencement date as 23.03.2004. The appellant subsequently complied with all procedural requirements related to de-bonding in 2010-2011, including payment of applicable duties and obtaining necessary No Objection Certificates from the Central Excise and FSEZ authorities.

The department later raised an audit query questioning the acceptance of 23.03.2004 as the date of commercial production, suggesting that the correct date should be 27.11.2004, the date of first export. This led to a show cause notice demanding recovery of Rs. 58,68,773/- along with interest and penalty for alleged excess claim of depreciation on imported capital goods.

The Tribunal examined the documentary evidence, including the Development Commissioner's certificate and the appellant's compliance with reporting and duty payment obligations. The Tribunal emphasized the authoritative nature of the Development Commissioner's certification under the EOU scheme, which is the controlling authority empowered to determine the date of commercial production. It was noted that the Development Commissioner had accepted the appellant's reports and had not raised any discrepancies at the relevant time, thereby validating the commencement date of 23.03.2004.

The Tribunal rejected the department's contention that the date of first export should be treated as the date of commencement of commercial production. The Tribunal reasoned that the Export and Import Policy and the procedural framework under the EOU scheme recognize the date of commercial production based on the Development Commissioner's certification rather than the date of first export. The appellant's entitlement to claim depreciation was linked to this certified date.

Applying the law to the facts, the Tribunal found that if the date of commercial production is taken as 23.03.2004, the appellant's claim for depreciation was correctly calculated and no demand for recovery arises. Consequently, the demand raised by the department, along with interest and penalty, was held to be unsustainable.

The Tribunal also addressed the competing arguments by considering the department's audit queries and show cause notice but found that the procedural compliance and documentary evidence submitted by the appellant were sufficient to uphold the certified date of commercial production. The absence of any discrepancy or objection from the Development Commissioner at the time of submission of progress reports reinforced the appellant's position.

In conclusion, the Tribunal held that the date of commercial production is 23.03.2004 as certified by the Development Commissioner. The demand for recovery of duty on account of alleged excess depreciation and the penalty imposed were set aside. The appellant's appeal was allowed with consequential relief.

Significant holdings include the Tribunal's clear statement that the Development Commissioner's certification of commercial production date is determinative and must be accepted unless successfully challenged. The Tribunal stated: "As certified by the Development Commissioner, who is the controlling authority of the appellant's unit, has certified that commercial production has started on 23.03.2004, therefore, the same be treated as 23.03.2004." This principle underscores the authoritative role of the Development Commissioner in the administration of the EOU scheme.

The Tribunal also established that the date of first export is not the controlling factor for determining the date of commencement of commercial production under the Export and Import Policy and related regulations. This distinction is crucial for calculating depreciation and duty liabilities.

Finally, the Tribunal's decision to set aside the entire demand and penalty on the basis that no amount was recoverable from the appellant reinforces the principle that demands must be grounded in correct legal and factual determinations, particularly where statutory certifications exist.