Transferable licence disputes: burden to prove non-availment of Modvat credit rests on the department, not the transferee.

In a transferable licence scheme, the condition of non-availment of Modvat credit on inputs used in export goods could not be fastened on a transferee who had no direct knowledge of the original manufacture. The burden remained on the department, or on the original licence holder, to prove breach of that condition; in the absence of evidence of credit availment, suppression, collusion or wilful misstatement, the extended limitation period and penalty were not sustainable.

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Issues: Whether, in the case of a transferee of a transferable licence, the burden to prove non-availment of Modvat credit on inputs used in export goods lay on the department, and whether the demand, penalty and invocation of the extended period were sustainable.

Analysis: The licence had been transferred through several hands before reaching the appellant, and the appellant came into the picture only after the export obligation had already been discharged by the original licence holder. The condition relating to non-availment of Modvat credit was one that could be established by the original licence holder, not by a transferee who had no direct knowledge of the inputs used in export manufacture. In such a composite exemption scheme, the burden of proving breach of the relevant condition could not be shifted to the transferee when the department had not produced evidence showing availing of credit by the licence holder. The record also did not establish suppression, collusion or wilful misstatement by the appellant so as to justify the extended limitation period or penalty.

Conclusion: The burden rested on the department and was not discharged; the demand, penalty and extended limitation were not sustainable, and the appellant succeeded.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: In a transferable licence scheme, the condition of non-availment of input credit is to be proved by the original licence holder or by the department, and a transferee cannot be saddled with that burden in the absence of evidence of suppression or misuse.

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