Strict compliance with exemption conditions bars duty-free benefit where Modvat credit breach is later reversed.

Strict compliance with Notification No. 203/92 was required for duty-free import benefits, and taking Modvat credit on duty-free imported inputs in breach of Clause V(a) constituted an immediate violation that disentitled the importer from the exemption. Later reversal of the credit and delayed payment of interest did not cure the original breach or restore the lost benefit, because the prescribed time for interest payment was not open to relaxation or extension. The notification was therefore construed strictly, and customs duty and interest remained payable in accordance with law; the order dropping proceedings was unsustainable.

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Issues: Whether breach of the conditions of Notification No. 203/92 dated 19-5-92 by taking Modvat credit on duty-free imported inputs, followed by later reversal of credit and payment of interest, could continue to protect the importer from customs duty liability.

Analysis: The notification granted duty-free import benefits subject to strict compliance with its conditions. Availing Modvat credit on the imported inputs in violation of Clause V(a) constituted a breach at the time of import and export operations, thereby disentitling the importer from the benefit of the notification. Subsequent reversal of credit and belated payment of interest did not cure the initial breach or restore the lost exemption. The time fixed for payment of interest under the scheme was not capable of relaxation or extension, and the exemption notification had to be construed strictly.

Conclusion: The importer remained liable to pay the customs duty and interest in accordance with law. The order dropping the proceedings was unsustainable and was set aside in favour of the Revenue.

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