Failure To Consider Final De-Bonding Date Vitiates Duty Demand: Andhra Pradesh High Court Sets Aside CESTAT Order In Richi Men Silks Case

“Once A Matter Is Remanded, Appellate Authority Must Decide On Merits – Not Hide Behind Finality”, In a scathing judgment delivered on January 29, 2026, the Andhra Pradesh High Court set aside a nearly two-decade-old duty demand imposed on Richi Men Silks Limited, a 100% Export Oriented Unit (EOU), holding that both the Commissioner (Appeals) and the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) had failed in their duty to apply judicial mind to the crucial issue of the appellant’s final exit from the EOU scheme.

Division Bench comprising Justice Battu Devanand and Justice A. Hari Haranadha Sarma observed that the failure of both quasi-judicial authorities to consider the final de-bonding date as clarified by the Deputy Development Commissioner in 2019 had resulted in a miscarriage of justice.

“The appellate authority is not permitted to abdicate its obligation by citing finality when the very matter has been reopened for fresh adjudication. Once remanded, the authority is duty-bound to assess the entire controversy on merits,” the Court declared, rejecting the stand of the Commissioner (Appeals) who had stated that he could not overrule findings of his predecessor.

Court Recognises Suo Motu De-bonding Order as Legally Decisive

The core of the dispute revolved around the date on which Richi Men Silks Limited, originally set up in 1987 under the 100% EOU scheme, was deemed to have exited the EOU regime. While the department had continued to insist that the appellant had ceased to be an EOU long before 2006, the Development Commissioner of the Visakhapatnam SEZ issued a suo motu de-bonding order dated 08.08.2006, later clarified through a letter dated 10.05.2019 that this must be treated as the final date of exit.

Quoting from the 2019 clarification, the Court noted:

“It is also mentioned that the unit was continued to be treated as EOU till the date of final exit order… In the instant case, the unit was issued ‘Suo-Moto’ de-bonding order on 08.08.2006 and the same may be treated as final date of exit of the unit.”

The High Court held that this clarification “goes to the root of determination of duty liability” and that Condition No.10 of the Standard Conditions attached to Industrial Licence for EOUs must be applied from this date.

“Condition No.10 is Not Discretionary – Authorities Must Comply with its Formula on De-bonding”

Referring to the appellant’s repeated contention that Condition No.10 mandates customs duty on depreciated value of capital goods at the time of de-bonding, the Court criticised the authorities for their lack of response:

“Though the CESTAT had recorded the contention of the appellant regarding applicability of Condition No.10, there is no discussion or finding on that aspect. Such omission reflects a mechanical and non-reasoned approach to adjudication.”

The Court firmly stated: “As and when the CESTAT remanded the matter for fresh consideration, the Commissioner (Appeals) has to consider the entire issue on merits.”

Instead, the Commissioner (Appeals) had erroneously held that the earlier adjudication had attained finality and refused to examine the effect of the 2006 de-bonding or the subsequent 2019 clarification. The CESTAT, too, was faulted for merely reproducing the earlier findings without any independent analysis.

“Quasi-Judicial Authorities Must Apply Their Mind – Not Act Like Stamp Offices”

In its most damning observation, the Court highlighted the erosion of judicial discipline in the adjudication:

“The Commissioner (Appeals) and the Tribunal are obliged to discharge their quasi-judicial functions by assessing the facts and law with proper application of judicial mind. In this case, unfortunately, they failed to do so.”

The Court declared that the orders of both the Commissioner (Appeals) and the CESTAT “suffer from non-application of mind and are unsustainable in law.”

Verdict: Orders Set Aside, Fresh Adjudication Directed

Allowing the appeal, the High Court set aside the Final Order No. A/31463/2017 dated 11.09.2017 passed by CESTAT and Order-in-Appeal No. 4 of 2004 dated 10.08.2004 passed by the Commissioner (Appeals), Guntur.

The Court remanded the matter to the Commissioner (Appeals) with a clear direction to conduct a de novo enquiry and pass a fresh order in accordance with law, keeping in view the clarification issued on 10.05.2019 treating 08.08.2006 as the final date of exit.

There was no order as to costs.

Date of Decision: 29 January 2026