Board clarification on Modvat reversal saved exemption compliance and defeated customs duty, confiscation and penalty.

Customs duty demand under Notification No. 203/92 could not be sustained where the importer had reversed wrongly availed Modvat credit with interest within the cut-off recognised by the Board's later clarification. The notification required that no input-stage credit be taken, but the Board's ex post facto relaxation treated timely reversal with interest as compliance with that condition. Because the assessee had reversed the credit and informed the department within the stipulated period, the basis for duty recovery, confiscation and penalty ceased to survive. The consequence was that the confirmed demand and all consequential enforcement action fell away.

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Issues: Whether customs duty demand, interest, confiscation and penalty could be sustained when the importer had reversed the Modvat credit with interest within the period recognised by the Board's clarification under the advance licence exemption scheme.

Analysis: The exemption under Notification No. 203/92 was subject, inter alia, to the condition that no input-stage credit under the relevant Central Excise Rules was taken. The Board subsequently issued a clarification relaxing the condition ex post facto for cases where the wrongly availed Modvat credit was reversed with interest within the prescribed cut-off date. The appellants had already reversed the credit with interest before the relevant date and had informed the department. In these circumstances, the notification condition stood treated as satisfied under the Board's amnesty/clarification, and the basis for recovery of duty and consequential action ceased to survive.

Conclusion: The duty demand, interest, confiscation and penalty were not sustainable and the appeal succeeded.

Final Conclusion: Compliance with the Board's relaxation removed the foundation for customs enforcement under the exemption notification, so the assessee was not liable for the confirmed demand or the consequential penalty.

Ratio Decidendi: Where the competent Board has ex post facto relaxed a notification condition and the assessee has reversed the wrongly availed credit with interest within the stipulated time, the customs demand based on breach of that condition cannot be sustained, and consequential penalty also falls away.

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