Customs exemption on imported components could not be denied while the underlying purchase-order dispute remained under arbitration.

Customs duty demand arising from denial of exemption on imported components was found premature where the exemption had been claimed at import on the strength of DRDO-linked documents and the goods were stated to have been used for the intended purpose. The later cancellation of the purchase order stemmed from a live dispute over specifications that had already been referred to arbitration by the Ministry of Defence. Because the validity and effect of the purchase order remained unresolved in that process, the exemption issue could not be finally decided against the importer at that stage. The duty confirmation was set aside and the matter remanded for fresh decision after the arbitration outcome.

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Issues: Whether the demand of customs duty by denying the exemption claimed on import of components was sustainable when the purchase order issued by DRDO was later cancelled and arbitration on the underlying dispute was still pending.

Analysis: The exemption was claimed at the time of import on the strength of the documents and certificate issued through DRDO, and the imported items were stated to have been used for the intended purpose. The subsequent cancellation of the purchase order arose out of a live dispute regarding specifications, which had already been referred to arbitration by the Ministry of Defence. Since the validity and effect of the purchase order itself was still under resolution through the agreed process, the question whether the exemption continued to be available could not be conclusively determined against the appellant at that stage.

Conclusion: The confirmation of duty liability was premature, the impugned order was set aside, and the matter was remanded to the Original Authority for fresh decision after the arbitration outcome.

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