Per Jyoti Balasundaram :

In this case, the Customs duty demand of Rs. 80,65,374/- has been confirmed against M/s. Vishal Footwear for contravention of the provisions of Notification No. 339/85-Cus dated 21.11.85 as amended and Notification No. 133/94-Cus dated 22.6.95, Central Excise duty of Rs. 1,13,394/- has been confirmed in terms of Notification No. 5/86-CE dated 20.1.86, penalty of Rs. 5 lakhs has been imposed on M/s. Vishal Footwear under Section 112 of the Customs Act, 1962, penalty of Rs. 20,000/- under Rule 173Q of the Central Excise Rules, 1944 has been imposed; further a penalty of Rs. 25,000/- has been imposed on the Managing Director of the company under the provisions of Customs Act and penalty of Rs. 5,000/- under the provisions of Central Excise Act. Imported goods valid at Rs. 2,18,98,263/- have been ordered to be confiscated under Section 111 (o) of the Customs Act, 1962 with option to redeem the same on payment of a fine of Rs. 12 lakhs.

2. The brief facts of the case are that M/s. Vishal Footwear which was a unit in the NOIDA Export Processing Zone, approved for manufacture and export of leather footwear, was allowed to import capital goods and raw materials etc. free of duty for manufacture and export of final products in accordance with the provisions of Notification 339/85-Cus and Notification 133/94-Cus. They were also entitled to procure capital goods and raw material, etc. indigenously without payment of Central Excise duty under Notification 5/86 and 126/95. The importer could not implement and start commercial production within the period stipulated in the letter of approval issued by the Development Commissioner in the Ministry of Commerce. Extension of the period of validity was sought from time to time and latest extension was granted till 30th September 96 and subsequently revalidated upto to 31.3.99.

3. The Department issued a show cause notice dated 31.1.97 proposing recovery of both Customs and Central Excise duty on the ground that conditions of Customs and Excise Notifications had not been fulfilled as the unit had not commenced manufacture and export of final products in the manufacture of which goods imported duty free and goods obtained indigenously free of duty, were utilised. The demands were confirmed by the Adjudicating authority whose order is in challenge before us.

4. The learned Consultant Shri J.M. Sharma submits that the stage for demand of duty has not yet arisen and draws our attention to Ministry of Finance Circular No. 29/95-Cus dated 10.3.95 which clearly stipulates that the demand of duty should be confirmed only after a definite conclusion has been arrived at by the Development Commissioner in case of failure to export goods or closure of unit after exporting a few consignments in terms of duty free benefits granted under the Customs and Excise Notifications. He submits that the demand is premature since the Development Commissioner has not approved de-bonding of the unit the importers have applied for further extension of the validity period to the Development Commissioner. He therefore, prays that the demand of duties and penalties imposed in the impugned order may be set aside.

5. Opposing the prayer, Shri Sangia, learned DR submits that the duty amounts are owing to the Government; that the Customs authorities are entitled to recover money and that if the demand is not upheld, units will be able to continue to delaying payment to the Government, which is not in accordance with the rights and interest of the Department to secure the money in the form of duty payable to it.

6. We have carefully considered the rival submissions and we see great force in the submissions of the appellants. Extract from the Ministry of Finance Circular is reproduced below:

"Issue of show cause notice for recovery of customs duty on goods imported by 100% EOU:

A number of instances have come to the notice of the Board where 100% EOU's had imported capital goods, raw materials and other permi