Hi

The first graduate literal meaning is first graduate in your family!. Your brother technically is the first graduate in the family. If he didn't apply and received the certificate you could have been considered first graduate but according to their records there is already a member of the family who got the certificate though he didn't avail any benefits from it as you pointed out. It's least of their concern they work acording to the rules and the rules say

• The applicant should be a resident of Tamil Nadu.
• No other family member should be graduate.
• Siblings should not have received this certificate.

This is probably the reason they rejected your application.

Hope this helps!