Non-availment of Modvat credit must be proved before denying customs exemption and sustaining penalty.

Exemption under Notification No. 203/92-Cus. could not be denied merely because the declaration on non-availment of input-stage Modvat credit was questioned, when the record showed no evidence that credit under Rule 56A or Rule 57A had actually been taken by the merchant-exporter or transferees. The fact that the exported goods were themselves exempt from central excise duty was not controverted, and the alleged breach of the notification condition was therefore not established. On that basis, the penalty imposed could not be sustained.

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Issues: Whether the benefit of Notification No. 203/92-Cus. could be denied and penalty sustained on the ground that the condition relating to non-availment of input-stage Modvat credit was allegedly violated.

Analysis: The appellants had exported the goods and later transferred the value based advance licence to other parties. The record contained no material showing that input-stage credit under Rule 56A or Rule 57A of the Central Excise Rules had in fact been availed either by the merchant-exporter or by the transferees. In the absence of evidence of actual availment, a mere alleged non-compliance with the declaration requirement regarding non-availment of Modvat credit could not justify denial of the exemption benefit. The stand that the exported goods were themselves exempt from central excise duty was also not controverted.

Conclusion: The alleged contravention of the notification condition was not made out, and the penalty imposed on the appellants could not be sustained.

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