Modvat credit reversal on DEEC licence transfer is not refundable where reversal is required for lawful transfer.

Under Notification No. 204/92-Cus., transfer of a DEEC licence was restricted where export goods had been manufactured using Modvat credit on eligible inputs. The article states that, in such cases, the credit taken on those inputs had to be reversed before a valid transfer could occur. Because the reversal was a necessary consequence of the licence condition and not shown to have been made at the department's instance, it did not create a refundable claim. The stated result is that a refund of the reversed Modvat credit was not maintainable on merits.

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Issues: Whether the appellants were entitled to refund of the Modvat credit reversed in relation to inputs used in exported goods after transfer of the DEEC licence under Notification No. 204/92-Cus. dated 19-5-1992.

Analysis: The appellants had availed Modvat credit on veneers used in the manufacture of exported goods and later transferred the DEEC licence to a third party. Condition No. vi of the notification prohibited the facility of sale or transfer of the materials or the licence where export goods were manufactured availing credit of central excise duty or additional customs duty in respect of materials permitted to be imported under the licence. The restriction meant that the licence could not be validly transferred unless the credit taken on such inputs was reversed. The record did not show that the reversal was made at the instance of the department, and the reversal merely complied with the restriction attached to the licence.

Conclusion: The reversal of credit was not refundable and the refund claim was not maintainable on merits.

Final Conclusion: The appeal failed because the credit reversal was a necessary consequence of the restriction on transfer of the DEEC licence, and no refund could be claimed for such reversal.

Ratio Decidendi: Where a licence transfer is barred unless credit availed on eligible inputs is reversed, such reversal is a condition for lawful transfer and does not give rise to a refundable claim.

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