Premature customs duty demand on export-oriented unit imports cannot be confirmed before the Development Commissioner's definite conclusion.

For a 100% export-oriented unit, customs duty on duty-free imports becomes payable on de-bonding or on violation or non-fulfilment of exemption conditions; a show cause notice may issue earlier, but confirmation of demand requires a definite conclusion by the Development Commissioner. Where no such conclusion had been recorded and the unit's validity period had been extended, the duty demand was premature. The related penalties and confiscation, being consequential to the unsustainable demand, were also set aside, and the appeals were allowed.

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Issues: Whether the customs and central excise duty demands, along with penalties and confiscation, were sustainable when the unit had not commenced production or exports and no definite conclusion had been reached by the Development Commissioner.

Analysis: The governing circular provided that in the case of a 100% export-oriented unit, customs duty liability on duty-free imports arises upon de-bonding or upon violation or non-fulfilment of the exemption conditions. It further stated that show cause notice may be issued earlier, but the demand of duty should be confirmed only after a definite conclusion is reached by the Development Commissioner. As no such conclusion had been recorded and the validity period had been extended, the demand had been raised before the statutory and administrative precondition for confirmation was satisfied.

Conclusion: The duty demand was premature and unsustainable. The penalties and confiscation, being consequential, were also set aside, and the appeals were allowed.

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