Customs exemption and limitation requirements failed where alleged Modvat misuse and suppression were not factually established.

Denial of exemption under Notification No. 203/92-Cus could not be sustained where the department failed to establish that Modvat credit had actually been availed on inputs used in the exported goods; a mere possibility of wrongful availment was insufficient and the burden lay on the department to prove non-compliance with the notification condition. The demand also failed because the extended period under Section 28(1) of the Customs Act, 1962 was invoked on bare allegations of suppression or misstatement without disclosing the factual basis, and the alternative plea of provisional assessment did not save a premature notice. The impugned order was set aside, with liberty to proceed afresh if legally permissible.

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Issues: (i) Whether the denial of exemption under Notification No. 203/92-Cus could be sustained on the ground that Modvat credit had been availed in respect of inputs used in the exported goods. (ii) Whether the demand was barred by limitation or otherwise unsustainable when the extended period was invoked on the basis of alleged suppression or misstatement, and whether the plea of provisional assessment saved the notice.

Issue (i): Whether the denial of exemption under Notification No. 203/92-Cus could be sustained on the ground that Modvat credit had been availed in respect of inputs used in the exported goods.

Analysis: The condition in the notification required that Modvat credit should not have been availed of for the manufacture of exported goods. The record did not establish that such credit had in fact been taken. A mere possibility of wrongful availment was insufficient, and the burden lay on the department to show the factual basis for alleging non-compliance with the notification condition.

Conclusion: The denial of exemption could not be sustained on this ground.

Issue (ii): Whether the demand was barred by limitation or otherwise unsustainable when the extended period was invoked on the basis of alleged suppression or misstatement, and whether the plea of provisional assessment saved the notice.

Analysis: The notice invoked the extended period under Section 28(1) of the Customs Act, 1962 on the allegation of wilful suppression or misstatement, but it did not disclose the evidentiary basis for such allegation. The omission rendered the invocation of the extended period unsustainable. The alternative plea that the assessment was provisional also did not assist the department, because in that event the notice was premature.

Conclusion: The notice could not be upheld on limitation, and the demand based on it was invalid.

Final Conclusion: The appeal succeeded and the impugned order was set aside, while leaving the department free to proceed afresh in accordance with law if legally permissible.

Ratio Decidendi: For invoking the extended period of limitation in customs demand proceedings, the notice must specifically disclose and support the factual basis of suppression or misstatement, and a mere assertion is insufficient; where provisional assessment is claimed, the demand cannot survive if the notice is premature.

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