Premature duty demand on NFEP shortfall cannot stand before five-year export review is completed

Duty demand for alleged shortfall in NFEP under Notification No. 02/95-CE was premature where the five-year period from commencement of commercial production had not yet expired. Paragraph 9.29 of the Export-Import Policy 1997-2002 required NFEP to be worked out annually and cumulatively over that five-year block, and no definite finding of non-fulfilment had been recorded by the Development Commissioner. In the absence of a completed review by the competent authority on breach of export conditions, denial of the exemption and recovery of duty could not be sustained at that stage.

---

---

Issues: Whether the demand of duty by denying the benefit of Notification No. 02/95-CE for alleged shortfall in NFEP could be sustained before completion of the five-year period from commencement of commercial production and without a definite determination by the Development Commissioner.

Analysis: Paragraph 9.29 of the Export-Import Policy 1997-2002 requires NFEP to be calculated annually and cumulatively for five years from the commencement of commercial production. The record showed that the five-year block had not been completed and that no definite finding had been recorded by the Development Commissioner regarding non-fulfilment of the export obligation. In such circumstances, the duty demand based on an alleged shortfall was premature. The reasoning followed the earlier view that recovery action on EOU clearances should await the competent authority's conclusion on breach of the export conditions.

Conclusion: The duty demand was not sustainable at that stage, and the denial of the exemption was liable to be set aside in favour of the assessee.

---