Custom, Excise & Service Tax Tribunal
M/S L & T Infocity Ltd vs The Commissioner on 7 September, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench Division Bench Court I Appeal No.C/2641/2011 & C/734/2012 (Arising out of Order-in-Appeal No.01/2011(H-IV) Cus.Dated 13-06-2011 & Order-in-Appeal No.02/2011(H-IV) Cus.Dated 28-12-2011passed by Commissioner of C.CE&ST(Appeals-II) Hyderabad) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Honble Mr. Madhu Mohan Damodhar, Member(Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s L & T Infocity Ltd. ..Appellant(s) Vs. The Commissioner. C&C.E, Hyderabad-IV ..Respondent(s)
Appearance Shri Ajay Kumar, Advocate for the Appellant Shri K.S.Krishna Prasad& Raghavendra, ARs for the Respondent Coram:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Honble Mr. Madhu Mohan Damodhar, Member(Technical) Date of Hearing : 14/07/2016 Date of decision: 07/09/2016 FINAL ORDER No._______________________ [Order per: Madhu Mohan Damodhar,] 1.1 The issue involved in this appeal is denial of depreciation on the equipments used in the export of software after de-bonding of warehouse and recovery of duty on full value of the equipment.
1.2 Appellant was permitted to set up an infrastructure facility for STP units under the STPI Scheme. Under notification No. 153/93-Cus dated 13-08-1993, the appellants were permitted to import duty free infrastructural facility equipments worth Rs.19.90 Crores, for the purpose of export of software by the STPI units. The Inter-Ministerial Standing Committee has approved the import vide their letter dated 15-06-2005. the appellants were issued 100% EOU Bonded Warehouse Licence No.15/2006 vide AC, Customs & Central Excise, Hyderabad letter dated 06-04-2006.
1.3 The goods were imported in the year 2006 and after nearly five years of use for the intended purpose, the appellants were allowed to de-bond the goods in the year 2011, by STPI vide their NOC letter dated 15-03-2011.
1.4 However on de-bonding, the department insisted for payment of duty on the original value of the equipment, without allowing depreciation on the ground that said Notification No. 153/93-Cus does not have any specific provision for allowing Depreciation.
1.5 Department vide a letter dated 21-01-2011 informed the appellants to pay full duty . Accordingly, appellants paid full customs duty of Rs.1,90,29,233/- under protest.
2. Aggrieved, the appellants filed an appeal to the Commissioner (Appeals), who vide Order in Appeal dated 13-06-2011, dismissed the same. Hence appeal C/2641/2011.
3. Appellants also filed refund claim of Rs.1,01,69,425/- on the ground depreciation not allowed at time of debonding their capital goods which was rejected by original authority vide order dated 19-08-2011 and by lower appellate authority vide Order-in-Appeal dated 28-12-2011. Hence appeal C/734/2012.
4. On behalf of the appellant, Ld. counsel Shri K.Vijay Kumar contended that when all conditions of Notification 153/1993-Cus had been fulfilled, denial of depreciation on the sole ground that the benefit was available only to STPI units as the appellant had only provided infrastructure, is erroneous. Ld. counsel further submitted that it is not the case of revenue that the goods were not put to use for the intended purpose of export of software. There has been no breach of the Notification. Even in cases where the STPI unit has kept the goods in store which are not in working condition, Tribunal has extended the depreciation by relying on CBEC circular No.29/2003 dated 03-04-2003 in the case of Iflex Solutions Ltd Vs Commissioner of Customs [2005(184)ELT259(Tri-Mum]. Ld. counsel further argued that the Notification does not mention that the exemptions is applicable only STPI units, it provides exemption for the goods and not to the class of importers, infrastructure or otherwise.
5. On behalf of the Revenue, Ld. AR Shri K.S.Krishna Prasad, reiterated the correctness of impugned orders.
6. Heard both sides and have gone through the facts of the case.
7. For better understanding of the issue, it would be useful to reproduce the relevant portions of the Notification No.153/1993-Cus dated 13-08-1993 and of Notification No.52/2003-cus dated 31-03-2003;
NOTIFICATION No.153/1993, dated August, 13, 1993 In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the telematic infrastructural equipments (hereinafter referred to as the said goods) as specified in the Annexure to this notification, when imported into India for being used for the export of software out of India under the Software Technology Parks Hundred Percent Export Oriented Scheme from the whole of the customs duty leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty if any leviable thereon under Section 3 of the second mentioned Act subject to the following conditions, namely :-
(i) The importer has been granted the necessary permission to import the said goods by the Inter-Ministerial Standing Committee for Hundred Percent Export Oriented Units in the Electronics Hardware Technology Parks (EHTP) and Software Technology Parks (STP) appointed by the notification of the Government of India in the Ministry of Industry, Department of Industrial Development No. S.O. 117(E), dated the 22nd February, 1993.
(ii) The importer uses the said goods only for the purpose of export of software.
(iii) The said imported goods shall be under customs bond and subject to such other conditions as may be specified by the Assistant Collector in this behalf.
(iv) The importer agrees to -
(a) bring the said goods into the unit and use them within the unit in connection with the export of software;
(b) not to move the said goods from the unit without the approval of Assistant Collector of Customs; and
(c) to use the said goods only for the purposes of export of software.
(v) The importer shall produce a certificate to the Assistant Collector of Customs from the concerned Chief Executive of the Software Technology Parks Society set up by the Government of India, Department of Electronics, to the effect that the said imported goods are to be installed or used in the unit and that the importer of such goods has been authorised by the said Inter-Ministerial Standing Committee.
(vi) The importer executes a bond in such form and for such sum and with such authority as may be prescribed by the Assistant Collector of Customs binding himself to use the said goods for export of software and to fulfil the conditions stipulated in this notification, and in or under the Import and Export Policy, 1992-97 and the conditions as may be specified by the Department of Electronics, and to pay on demand an amount equal to the duty leviable on the said goods as are not proved to the satisfaction of the Assistant Collector to have been used for the purposes for which the said goods were allowed to be imported.
(vii) The Collector of Customs, may subject to such conditions as may be prescribed by him, allow a unit to re-export the said goods subject to the necessary permission being granted by the Chief Executive of the Software Technology Park.
(viii) The procedure as may be prescribed by the Collector of Customs is followed by such unit.
ANNEXURE I Telecommunication Transmission Equipment ..
1A Terrestrial Transmission equipment.
..
II. Satellite Communication Equipment
..
III. DATA COMMUNICATION EQUIPMENT
..
IV. AUTOMATIC DATA PROCESSING MACHINES AND UNITS
..
NOTIFICATION No.52/2003, dated 31-03-2003
EOU/STP/EHTP units Exemption to goods procured by Notification Nos. 3/88-Cus., 277/90-Cus., 138/91-Cus., 140/91-Cus., 95/93-Cus., 96/93-Cus., 126/94-Cus., 196/94-Cus., 53/97-Cus., 47/98-Cus. and 58/2000-Cus. rescinded In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) (hereinafter referred to as the said Customs Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts,-
(a) all goods as specified in the AnnexureI to this notification, when imported or procured from a Public Warehouse or a Private Warehouse appointed or licensed, as the case may be, under section 57 or section 58 of the said Customs Act or from international exhibition held in India for the purposes of -
(i) manufacture of articles for export or for being used in connection with the production or packaging or job work for export of goods or services by export-oriented undertaking (hereinafter referred to as the unit) other than those referred to in clauses (b), (c) and (e), or
(ii) manufacture or development of software, data entry and conversion, data processing, data analysis and control data management or call center services for export by Software Technology Park (STP) unit, or a unit in Software Technology Park Complex under the export-oriented scheme (hereinafter referred to as the unit); or
(iii) manufacture and development of electronics hardware or electronics hardware and software in an integrated manner for export by an Electronic Hardware Technology Park (EHTP) unit or a unit in Electronic Hardware Technology Park Complex under the export-oriented scheme (hereinafter referred to as the unit); or
(b) -
from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act, subject to the following conditions, namely :-
(1) The importer has been authorised by the Development Commissioner to establish the unit for the purposes specified in clauses (a) to (e) of the opening paragraph of this notification;
(2) The unit carries out the manufacture, production, packaging or job-work or service in Customs bond and subject to such other condition as may be specified by the Deputy Commissioner of Customs or Assistant Commissioner of Customs or Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, (hereinafter referred as the said officer) in this behalf;
(3) The unit executes a bond in such form and for such sum and with such authority, as may be specified by the said officer, binding himself,
(a) to bring the said goods into the unit or and use them for the specified purpose mentioned in clauses (a) to (e) in the opening paragraph of this notification;
(b) -
(9) The Software Technology Park (STP) unit may be allowed to import duty free Telematic Infrastructure equipment. The telemetric infrastructure equipment so imported may also be utilized for export by other Software Technology Park (STP) units.
(10) -
4. Without prejudice to any other provision contained in this?4. notification, the said officer may, subject to such conditions and limitations as he may deem fit to impose under the circumstances of the case for the proper safeguard of revenue interest and also subject to such permission of the Development Commissioner, wherever it is specially required under the Export and Import Policy, allow the unit to clear any of the said goods for being taken outside the unit, to any other place in India in accordance with the Export and Import Policy:
Provided that -
(a) such clearance of capital goods, may be allowed on payment of duty either on the depreciated value thereof and at the rate in force on the date of payment of such duty or on the transaction value whichever is higher. The depreciation shall be allowed at the rate of 20% per annum of the original value in respect of computer and computer peripheral items and 10% per annum in case of other capital goods.
Explanation.? - The depreciation shall be allowed for the period from the date of commencement of commercial production of the unit or where such goods have been received after such commencement, from the date such goods have come into use for commercial production to the date of payment of duty;
11. Nothing contained in this notification shall apply to the?11. goods imported by a service sector export-oriented undertaking as specified in clause (a) in the opening paragraph, who does not directly export services out of India. Explanation - For the purposes of this notification,-
(i) Board of Approval means the authority appointed by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951) and the rules made under that Act;
(ii) -
(iii) -
(iv) export-oriented undertaking has the same meaning as assigned to hundred percent. Export-oriented undertaking in clause (ii) to the Explanation of sub-section (1) of section 3 of the Central Excise Act, 1944 (1 of 1944);
(v) -
(vii) Inter-Ministerial Standing Committee means a committee appointed by the Government of India in the Ministry of Industry (Department of Industrial Development) vide notification No. S.O. 117(E), dated the 22nd February, 1993;
(viii) -
(ix) Software Technology Park (STP) unit means a unit established under and in accordance with Scheme notified by the Government of India in the Ministry of Commerce and Industry vide notification No. 4(RE-95)/92-95, dated 30th April, 1995 and approved by the Inter-Ministerial Standing Committee;
8. By the appellants own admission, the impugned goods were imported under Notification No.153/1993-Cus in 2006 after obtaining the approval for such import and duty exemption provided therein from the Inter-Ministerial Standing Committee. This being the case, Notification No.153/1993-Cus allowed an importer to re-export the said goods, subject to necessary permission being granted by the Chief Executive of the software technology park. No other facilitation concerning removal from the STPI or clearance to the DTA is mentioned in the notification and, certainly there is no provision for depreciation on such removals, unlike the subsequent Notification 52/2003-Cus. Nonetheless, it must be kept in mind that the 1993 notification was one the early steps taken by the Government to provide suitable conditions for the then nascent growth of software technology in the country. Notifications issued subsequently, like 52/2003-Cus did take cognizance of the early obsolescence of capital goods related to software technology and in fact, extended depreciation at attractive terms. But just because No.153/21993Cus is bereft of such a provision, would it mean that capital goods imported by appellant in 2006, when cleared to DTA five years thence, in 2011, can be denied depreciation from originally imported value? We think not. The CBEC have issued a number of circulars clarifying the grant of deprecation on debonding of capital goods from EOU/EPZ/EHTP/STP units. Boards circular No.305/52/85-FTP dated 15-04-21987 prescribed the method for calculating the depreciation on capital goods permitted to be taken outside the units and the overall limit of depreciation was fixed at 70%. Subsequently, CBEC vide F.No.314/19/94-FTT Part-VI dated 11-04-1997, had provided for accelerated rate of depreciation for the computers in view of their rapid obsolescence, keeping the overall limit at 70%. This scale was not found adequate and vide CBECs F. No.314/19/94-FTT dated 21-04-1998(circular No.27/98-Cus) an even higher depreciation for the purpose of payment of duty on clearance, both for imported and indigenous capital goods, was prescribed, subject to an overall limit of 90% for computers and 75% for capital goods other than computers. This circular also was modified vide CBEC 43/98-Cus dated 26-06-1998. After issue of the revised Exim policy 1997-2002 and Handbook of Procedures(HOP) VolI, amendments were made in the provisions governing duty free import/procurement of goods by EOU/EPZ/STP/EHTP units vide notification No.71/2000-cus and 40/2000 CE both dated 22-05-2000 Salient features of the changes were conveyed vide CBEC circular No.49/2000-cus dated 12-05-2000. Para 17 of the circular which dealt with the depreciation norms for capital goods at the time of debonding, is reproduced as under:
Depreciation norms for capital goods
17. As per para 9.35 of HOP, at the time of debonding, depreciation upto 90% is allowed in respect of capital goods. The maximum limit (i.e.90%) is achieved over a period of 8 years. For computer and computer peripherals, accelerated depreciation was allowed i.e. the limit of 90% was achieved over a period of 4 years and 3 months. Under the revised HOP, further accelerated depreciation for computers and computer peripherals has been provided i.e. maximum limit of 90% would be achieved over a period of 2 years and 9 months in lieu of 4 years and 3 months as at present. Boards Circular 27/98-Cus, dated 21.4.98, provides depreciation norms for computer and computer peripherals upto the limit of 90%, and for the capital goods other than the computers upto a limit of 75%. Circular 27/98-Cus, dated 21.4.98 was subsequently modified by circular No. 43/98-Cus dated 26.6.98 in order to provide depreciation to capital goods other than computer and computer peripherals upto a limit of 90%. To implement the changes made in the HOP, it has been decided to allow a further accelerated depreciation for computer and computer peripherals as under:
For every quarter in the first year @ 10% For every quarter in the second year @ 8% For every quarter in the third year @ 7% For every quarter in the fourth year and thereafter @ 5% Subject to a maximum of 90% Circular Nos. 27/98 dated 24.4.98 and 43/98-Cus dated 26.6.98 stand modified to the above extent
9. From the above discussions, we are of the considered opinion that the appellant would definitely be eligible for the depreciation as prescribed by the CBEC Circular applicable at the time of debonding.
10. While arriving at this conclusion, we also follow the decision of the Tribunal on identical issue in Kumar Housing Corporation Ltd Vs CCE Pune-III[2014(308)ELT-741(Tri-Mum)] 5.2 The appellant has been approved as a 100% EOU in? the STP Scheme by the Govt. of India and the appellant has procured the capital goods both indigenously without payment of duty and as well as imported under the provisions of Notification No. 153/93 and 22/2003. After using the capital goods for some time, the appellant sought to de-bond the said capital goods. The appellant has applied for de-bonding to the competent authorities and subject to paying the appropriate duty and obtaining NOC from the customs, the appellants request for de-bonding is permitted.
5.3 As regards the question whether depreciation can be? allowed on the capital goods imported under Notification No. 153/93, though the notification does not provide specifically for the same, prior to 2003, most of the notifications issued under the Customs Act, did not provide for depreciation norms when the capital goods were allowed de-bonding. However, the C.B.E. & C. issued Circulars right from 1994 onwards allowing depreciation on capital goods at the time of de-bonding. For instance vide Circular No. 314/19/94-FTF, dated 2-9-1994, the rate of depreciation on capital goods at the time of de-bonding of entities working under 100% EOU scheme was prescribed at the rate of 5% per quarter in the first two years and 4% per quarter for the next two years subject to a maximum of 70%. The said norms were modified vide Circular, dated 11-4-1997, wherein the depreciation norms were changed to 7% per quarter in the first year, 6% per quarter in the second year and 5% per quarter for the third year subject to maximum of 70%. Later on vide Circular No. 49/2000, dated 22-5-2000, the norms were further liberalized and the maximum amount of depreciation was permitted at 90% for a period of 8 years and for computer and computer peripherals, accelerated depreciation was allowed. Later on these depreciation rates were incorporated in the notification itself and Notification No. 52/2003, dated 31-3-2003 provides for depreciation norms in para 4 of the Notification itself for capital goods other than computer and computer peripherals and computer and computer peripherals separately. The upper limit of depreciation is 100%. Similarly, Notification No. 22/2003-C.E., dated 31-3-2003 provides for depreciation on capital goods procured independently. Thus from the circulars issued by C.B.E. & C. from time-to-time, it is clear that depreciation has to be allowed in respect of the capital goods, from the date of installation/use of capital goods till the date of de-bonding. Similar provisions exist in respect of domestically procured capital goods also. Therefore, the finding of the adjudicating authority that the appellant is not eligible for depreciation on capital goods is completely contrary to the express provisions of EXIM Policy as also the provision of Notification Nos. 52/2003-Cus., dated 31-3-2003 and 22/2003-C.E., dated 31-3-2003 and Boards Circulars issued from 1994 onwards. Therefore, the said order cannot be sustained in law. In view of the above, the matter has to go back to the adjudicating authority for fresh consideration for determining the quantum of duty which the appellant is liable to pay at the time of de-bonding by taking into account the appellants entitlement to depreciation on the capital goods sought to be de-bonded in terms of the rates prescribed under Notification No. 52/2003-Cus. and 22/2003-C.E. from the date of installation/putting to use of the capital goods till the date of de-bonding. If the appellant discharges the duty liability on the depreciated value, the jurisdictional Customs/Excise department is bound to permit de-bonding as per the procedure prescribed. Needless to say the appellant has to follow the prescribed procedure and has to obtain permission for de-bonding from the competent authorities. The question of imposition of any penalty would not arise at all in the facts and circumstances of the case
6.Thus, the appeals are allowed by way of remand.
11. In the event, the Order-in-Appeal dated 13-06-2011 is bad in law and required to be set aside, which we hereby do. By implications, the Order-in-Appeal dated 28-12-2011 will also be required to be set aside, which we hereby do.
12. Appeals C/2641/2011 and C/734/2012 allowed, with consequential reliefs, if any as per law.
(Pronounced on 07/09/2016 in open court) (MADHU MOHAN DAMODHAR) MEMBER(TECHNICAL) ( SULEKHA BEEVI, C.S.) MEMBER(JUDICIAL) dks ..dks 11