Modvat credit reversal and interest payment can cure licence defects and preserve duty-free import eligibility.

Reversal of wrongly availed Modvat credit, together with payment of interest as required by the relevant trade notice, was treated as curing the earlier breach of the licensing condition. Once those stipulated steps were completed, the defect affecting eligibility for transfer of the advance licence was removed, and the transferee remained entitled to duty-free import under the transferred licence. The tribunal accordingly accepted that compliance restored the licence conditions and upheld the benefit of duty-free import.

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Issues: Whether reversal of wrongly availed Modvat credit along with payment of interest, as required by the relevant trade notice, restored the conditions for transferability of the advance licence and entitled the transferee to duty-free import.

Analysis: The licensing condition that had been breached was subsequently relaxed by the Government through the trade notice. The Tribunal accepted that compliance with the stipulated conditions, namely reversal of the Modvat credit and payment of interest, removed the defect affecting eligibility. On that basis, the transferee could validly claim the benefit of the transferred licence for duty-free import.

Conclusion: The issue was decided in favour of the assessee. The impugned order allowing duty-free import was upheld.

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