Burden of proving breach of exemption conditions and independent consideration of limitation in customs adjudication

Where exemption under a transferability-based import notification is denied on the allegation that the original exporter availed input-stage credit, the revenue must prove the breach; the transfer endorsement and licensing records were treated as relevant, but the department had not discharged that burden. The plea of limitation under the proviso to Section 28(1) of the Customs Act also had to be independently examined, as the notice was issued years after import and the adjudication order gave no finding on the objection. The impugned order was set aside and the matter remanded for fresh adjudication after hearing the appellant.

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Issues: (i) Whether the benefit of Notification No. 203/92-Cus could be denied to the transferee of advance licences on the allegation that input-stage credit had been availed by the original exporter, and on whom the burden lay to prove such violation; (ii) Whether the demand was barred by limitation under the proviso to Section 28(1) of the Customs Act.

Issue (i): Whether the benefit of Notification No. 203/92-Cus could be denied to the transferee of advance licences on the allegation that input-stage credit had been availed by the original exporter, and on whom the burden lay to prove such violation.

Analysis: The licences had been transferred by the licensing authority under paragraph 67 of the Exim Policy 1992-1997. That provision permitted free transfer only after fulfilment of export obligation, realization of export proceeds, and redemption of the Bank Guarantee/LUT, and the facility was unavailable where modvat/proforma credit had been availed under Rule 191B of the Central Excise Rules, 1944. The transfer endorsement therefore indicated verification of the relevant records by the licensing authority. In these circumstances, the department was required to establish that Condition (V)(a) of the notification had been violated by availment of input-stage credit. That burden was not discharged in the adjudication order.

Conclusion: The denial of exemption was not sustained on the material considered, and the issue was required to be re-examined by the adjudicating authority.

Issue (ii): Whether the demand was barred by limitation under the proviso to Section 28(1) of the Customs Act.

Analysis: The imports were made during 1993-94, while the show-cause notice was issued in January 1999 and served in February 2000. The appellant had specifically raised limitation in reply to the notice, but the adjudication order did not address that plea or record any rebuttal.

Conclusion: The limitation issue remained unconsidered and required fresh adjudication.

Final Conclusion: The impugned order was set aside and the dispute was sent back for re-adjudication after giving the appellant an opportunity of hearing.

Ratio Decidendi: Where exemption under a transferability-based import notification is denied on the ground of prior credit availment by the original exporter, the revenue must prove the alleged breach, and a material plea of limitation must be independently considered in adjudication.

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