Exemption benefit and extended limitation under Customs law depend on proven ineligibility and factual basis, not bare allegation.

Notification No. 203/92-Cus. was examined in the context of alleged Modvat credit availed through a supporting manufacturer who was not registered under Rule 174 of the Central Excise Rules. The text states that, because the supporting manufacturer was unregistered and could not have taken Modvat credit, denial of the notification benefit on that ground was not justified. It further explains that where exemption had already been granted at clearance, the department had to establish the factual basis for invoking the extended period under the proviso to Section 28(1) of the Customs Act; a bare assertion of non-production of evidence was insufficient. On that reasoning, the notice was time-barred.

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Issues: (i) Whether the benefit of Notification No. 203/92-Cus. could be denied on the ground that Modvat credit had been availed in the manufacture of the exported goods when the supporting manufacturer was not registered under Rule 174 of the Central Excise Rules. (ii) Whether the show cause notice issued in 1999 could validly invoke the extended period under the proviso to Section 28(1) of the Customs Act in respect of goods imported and cleared in 1994.

Issue (i): Whether the benefit of Notification No. 203/92-Cus. could be denied on the ground that Modvat credit had been availed in the manufacture of the exported goods when the supporting manufacturer was not registered under Rule 174 of the Central Excise Rules.

Analysis: The appellant was a merchant exporter and the advance licence named a supporting manufacturer. The record showed that the supporting manufacturer was not registered with the Central Excise authorities under Rule 174 of the Central Excise Rules and therefore could not have taken Modvat credit. Since the same departmental authority had accepted that position in connected proceedings on the basis of the departmental certificate, the alleged availing of Modvat credit in the present case could not be sustained.

Conclusion: The denial of the notification benefit on this ground was not justified and the issue was decided in favour of the appellant.

Issue (ii): Whether the show cause notice issued in 1999 could validly invoke the extended period under the proviso to Section 28(1) of the Customs Act in respect of goods imported and cleared in 1994.

Analysis: The exemption had already been granted when the goods were cleared. If the department later sought to deny the exemption and rely on the extended limitation period, it had to show the factual basis for invoking the proviso to Section 28(1) of the Customs Act and identify the importer's act or omission bringing the case within it. A mere assertion that evidence had not been produced to prove non-availment of Modvat credit was insufficient to sustain the extended period after the exemption had already been allowed.

Conclusion: The extended period was not available and the notice was barred by limitation, in favour of the appellant.

Final Conclusion: The exemption could not be denied on the stated ground and the demand was time-barred, so the appeal succeeded and the impugned order was set aside.

Ratio Decidendi: Once an exemption has been granted, the revenue must establish the factual and legal basis for invoking the extended limitation period under Section 28(1) of the Customs Act; a bare allegation of ineligibility is insufficient, and non-registration of the supporting manufacturer negates the premise that Modvat credit was availed.

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