Advance licence transferee protection under customs exemption where exporter's MODVAT compliance cannot be imputed to the transferee.

A transferee of an advance licence cannot be denied the benefit of Notification No. 203/92-Cus merely because the transferor-exporter is alleged to have taken MODVAT credit in breach of Condition No. V(A). The non-availment obligation under the notification applies to the exporter, and liability cannot be shifted to the transferee for the exporter's compliance. Where no evidence establishes that MODVAT credit was actually availed, or that the non-availment declaration was false, denial of exemption and the resulting customs duty demand are unsustainable.

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Issues: Whether the transferee of an advance licence can be denied the benefit of Notification No. 203/92-Cus on the ground that the transferor-exporter had allegedly availed MODVAT credit in violation of Condition No. V(A).

Analysis: The demand rested on the allegation that the transferor-exporter had taken input stage MODVAT credit under Rule 57A of the Central Excise Rules, 1944, thereby breaching Condition No. V(A) of Notification No. 203/92-Cus. No evidence was adduced to establish that the exporter had in fact availed such credit, nor was the declaration of non-availment shown to be false or incorrect. The obligation under the condition of non-availment of MODVAT credit attached to the exporter, not to the transferee of the licence. The settled position, as recognised by the Larger Bench and upheld by the Supreme Court, is that the transferee cannot be made liable for the exporter's compliance with that condition.

Conclusion: The denial of the exemption and the consequent customs duty demand were unsustainable; the appeals were entitled to succeed.

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