Customs duty recovery from a 100% EOU requires prior determination of export obligation default before demand can stand.

Duty foregone on imports by a 100% Export Oriented Unit becomes recoverable only when the unit is debonded or the exemption conditions are violated or left unfulfilled. The text states that, where the Development Commissioner had extended EOU status and had not yet determined non-fulfilment of the export obligation, the customs demand could not be confirmed by the department. On that basis, the demand was premature and unsustainable, and the impugned order was set aside.

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Issues: Whether demand of customs duty foregone in respect of capital goods and raw materials used by a 100% Export Oriented Unit could be confirmed before the Development Commissioner determined non-fulfilment of export obligation.

Analysis: The unit had been operating as a 100% EOU and the Development Commissioner had extended its EOU status. The department sought recovery on the footing that the export obligation had not been met within the stipulated period. The governing circular stated that duty liability on goods imported by a 100% EOU arises when the unit is debonded or when the conditions of the exemption notification are violated or remain unfulfilled. On that basis, recovery could be taken up only after the competent authority determined that the export obligation had not been fulfilled. In the absence of such determination, the demand was held to be without basis.

Conclusion: The demand was premature and unsustainable. The impugned order was set aside and the appeal was allowed.

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