Burden on Revenue to prove prior Modvat credit before denying customs exemption under advance licence scheme

Exemption under Notification No. 203/92-Cus could not be denied merely on an allegation that Modvat credit had been availed on inputs used for the exported goods, because the licences were genuine and produced at import clearance and the transferee was not shown to have taken such credit. The burden remained on the Revenue to prove prior credit availment, and requiring the transferee to disprove the exporter's conduct was treated as an impossible burden. In the absence of evidence, the customs duty demand was unsustainable and the exemption claim succeeded.

---

---

Issues: Whether the demand of customs duty by denying exemption under Notification No. 203/92-Cus was sustainable when there was no evidence that the transferee of the advance licence had availed Modvat credit on the inputs.

Analysis: The licences were found to be genuine and had been produced at the time of import clearance. The appellant was only a transferee of the advance licences issued to the original manufacturer-exporter. The allegation in the show cause notice was that Modvat credit had been availed on the inputs used for goods exported against the licences, but the record contained no evidence to establish such availment by the appellant. Requiring the transferee to prove that the original exporter had not taken credit was treated as an impossible burden. In the absence of proof by the Revenue, the exemption could not be denied.

Conclusion: The demand of customs duty was not sustainable and the denial of exemption failed.

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

Ratio Decidendi: Where exemption is denied on the allegation of prior Modvat credit availment, the burden lies on the Revenue to prove such availment, and in the absence of evidence the demand cannot be sustained.

---