M/s Century Denim vs CCE, Indore

The facts leading to filing of this appeal are, in brief, as under.

1.1 The appellant are a division of M/s Century Textiles and Industries Ltd. engaged in manufacture of denim fabrics chargeable to Central Excise

duty. They were earlier a 100% EOU and had commenced commercial production on 25/03/97. They had imported capital goods free of customs duty

and had also procured from domestic sources the indigenously manufactured capital goods free of Central Excise duty. Besides the capital goods, they

had also imported free of custom duty the spare parts from time to time. On 01/04/04 on their application for debonding, the Development

Commissioner gave in-principal approval for debonding. Thereafter the Jurisdictional Central Excise officer after checking their stock assessed the

duty on the capital goods and inputs to be paid at the time of debonding and the total excise duty and custom duty so assessed was Rs.6,23,79,012/-.

This duty was paid and on 16/04/04. The Commissioner issued a no due certificate which was passed on to the Development Commissioner. On

20/04/04 the Development Commissioner issued a final debonding order and, as such, the appellant’s unit became a DTA unit.

1.2 The appellant during January 2001 to May 2001 period had used and capitalized certain spare parts totally valued at Rs.75,75,268/-. These spares

imported free of duty were used to replace the damaged and worn out parts of the machinery. The Department in course of audit of their records, on

finding that they have capitalized the spare parts valued at Rs.75,75,268/- during January 2001 - May 2001 period, took the view that by this process,

the value of the capital goods has increased by an amount of Rs. 75,75,268/- and accordingly at the time of debonding, duty should have been paid on

this amount after 10% depreciation i.e. on value of Rs.61,35,966/-. It is on this basis that after issue of show cause notice, the Jurisdictional

Commissioner of Customs vide order-in-original dated 27/08/08 confirmed the customs duty demand of Rs.24,05,298/- alongwith interest thereon

under Section 28AB of Customs Act, 1962 and beside this, imposed penalty of equal amount on the appellant under Section 114A of Customs Act,

1962. Against this order of the Commissioner, this appeal has been filed.

Heard both the sides.

Shri Aman Dave, Ms. Chahat Chawla and Shri Karander Dev Chopra, Advocates, the learned Counsels for the appellant, pleaded that the spare

parts were not physically available at the time of debonding, as the same has been used up during the period from January 2001 to May 2001, that by

replacing the old and worn out parts of the machinery by the new spare parts, the value of the machinery does not increase, that since the spare parts,

in question, were not in stock when the in-principle approval for debonding had been granted, no duty can be demanded on the same and that in view

of the above submissions, the impugned order is not correct.

Shri Govind Dixit, the learned Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner and

emphasized that when the appellant have capitalized the spare parts, in question, there is double enrichment, as they have availed depreciation on the

value of the spare parts and at the same time, they have also enjoyed the Customs duty exemption, that once the spare parts, in question, were

capitalized, their value has to be added to the value of the capital goods, that the appellant had suppressed the fact of capitalization of the spare parts,

in question, during January 2001 to May 2001 period, which came to the notice of the Department only in course of audit of their record and,

therefore, the longer limitation period has been correctly invoked and that in view of the above submissions, there is no infirmity in the impugned order.

We have considered the submissions from both the sides and perused the records.

The appellant unit during its existence as a 100% EOU had imported free of customs duty certain spare parts for machinery and there is no dispute

that these spare parts were used for replacement of the old and worn out machinery parts during January 2001 to May 2001 period. Even though

these spare parts have been capitalized, in our view once the spare parts have been used for replacement of the old and worn out machinery parts, the

same become part of the machinery and they loose 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. At the time of debonding, 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 and for this purpose, the value of the capital goods cannot be

enhanced by the value of the spare parts used from time to time, even if the same have been capitalized. It is also seen that at the time of debonding,

the Jurisdictional Inspector, Central Excise, after checking their records and stock, had determined the appellant’s duty liability and had

communicated the same under his letter dated 09/04/04 and at that time also he had checked the account of receipt and consumption of the imported

as well as indigenously procured spare parts. In view of this, the appellant cannot be accused of suppressing the relevant information from the

Department and, therefore, no justification for invoking the extended period under proviso to Section 28(1) of the Customs Act, 1962 and, as such, the

show cause notice dated 03/10/07 is time barred.

In view of the above discussion, the impugned order is not sustainable on merits as well as on limitation. The same is set aside. The appeal is

allowed.

(Operative part of the order pronounced in the open court.)