Customs limitation and exemption denial fail where suppression and breach of notification conditions are not proved.

The customs demand could not be sustained on the extended limitation period because the department produced no supporting shipping bill or other material showing suppression or misstatement by the importer, and the omission to verify the exemption condition was treated as a departmental lapse. The department also failed to prove that Modvat credit had in fact been availed, so denial of Notification No. 203/92-Cus. for alleged breach of the non-availment condition was unsustainable. The burden to justify the extended period and to establish breach of the conditional exemption remained on the department, and that burden was not discharged.

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Issues: Whether the customs demand could be sustained by invoking the extended period under the proviso to Section 27(1) of the Customs Act, 1962 on the allegation of a declaration in the shipping bill, and whether the benefit of Notification No. 203/92-Cus. could be denied for alleged non-fulfilment of the condition relating to non-availment of Modvat credit.

Analysis: The demand was founded on an alleged declaration in the shipping bill that Modvat credit had not been availed. No supporting shipping bill was produced with the notice, and there was no material to show that the officers who processed the import and extended the exemption had acted on any such declaration. The failure to verify compliance with the notification condition was attributable to departmental omission, not to suppression or misstatement by the importer. The department also failed to adduce any evidence that Modvat credit had in fact been availed. In these circumstances, the burden to justify the extended period and to establish breach of the exemption condition was not discharged.

Conclusion: The extended period under the proviso to Section 27(1) could not be invoked, and denial of the exemption was unsustainable.

Final Conclusion: The impugned order was not confirmed and the appeal succeeded, leaving the assessee entitled to the benefit of the exemption.

Ratio Decidendi: For invoking the extended limitation period in customs demand proceedings, the department must establish suppression or misstatement with supporting material, and where exemption is denied for breach of a conditional notification, the burden of proving such breach lies on the department.

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