Export obligation delay alone cannot trigger duty demand on duty-free inputs used for export production absent mala fide or diversion.

Duty-free imports and indigenous procurements used by a 100% export oriented unit for export production could not be subjected to customs or excise duty merely because the export obligation was fulfilled belatedly. The exemption notification, bond terms, amended notification and Board circular contemplated liberal extension of time for export performance, and duty with interest was indicated only where there was mala fide conduct or diversion of raw material. As the goods were used only for export production, the allegation was confined to delay, and the unit's export oriented status was not cancelled, the duty demand was held unsustainable.

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Issues: Whether customs and excise duty could be demanded from a 100% export oriented unit merely because export obligation was fulfilled belatedly, when the imported and indigenous duty-free materials were used for export production and there was no allegation of mala fide or diversion of raw material.

Analysis: The duty demand was founded on the alleged failure to satisfy the export condition in the exemption notification and the bond. The relevant notification and bond provisions related to duty-free raw materials for export production, not to a blanket forfeiture of exemption for every delay in exports. The amended notification and the Board's circular contemplated liberal extension of time for fulfillment of export performance and indicated that duty and interest were to be demanded only in cases involving mala fide or diversion of raw material. On the facts, the unit had used the goods only for export production, the allegation was confined to delay in exports, and its status as an export oriented unit was not cancelled.

Conclusion: The duty demand was not sustainable and was set aside in favour of the assessee.

Ratio Decidendi: In the case of an export oriented unit, duty-free imports or procurements used for export production cannot be subjected to duty demand merely for delayed fulfillment of export obligation, absent mala fide conduct or diversion of the duty-free goods.

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