Exemption on advance licence transfer fails where Modvat credit was originally availed and later reversed.

An exemption notification conditioned benefit on non-availment of Modvat credit under the Central Excise Rules, and that condition could not be bypassed by transfer of an advance licence. The customs exemption had to be tested independently of the licensing authority's endorsement of transferability, and the transferee could not claim a better position than the original licensee. Reversal of Modvat credit after shipment did not cure the prior breach of the substantive exemption condition. The notification had to be read as a whole, so the transferee was not entitled to exemption.

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Issues: Whether the transferee of an advance licence could claim exemption under Notification No. 204/92 when the export goods were manufactured by availing Modvat credit under the Central Excise Rules and the credit was reversed later.

Analysis: The exemption under Notification No. 204/92 was subject to the condition that where export goods were manufactured by availing credit under Rule 56A or Rule 57A of the Central Excise Rules, 1944, the benefit of sale or transfer of materials or the licence would not be available. The fact that the licensing authority endorsed transferability did not conclude the question of exemption under the customs notification. The Customs authorities were entitled to test whether the conditions of the notification were satisfied. Reversal of Modvat credit after shipment did not undo the earlier breach of the exemption condition. The transferee could not claim a better benefit than the original licensee, and the notification had to be read as a whole, not by isolating the transferability clause from the exclusionary condition.

Conclusion: The exemption claim was not available to the transferee, and the departmental appeals were allowed.

Ratio Decidendi: Where an exemption notification makes non-availment of Modvat credit a substantive condition, a later reversal of the credit does not cure the breach, and a transferee of the licence cannot obtain exemption if the original licensee was disentitled under the notification.

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