Pre-deposit in excise stay proceedings: prima facie Rule 173H contravention justified limited deposit, with penalty cap questioned.

A stay application under section 35F of the Central Excise Act was examined against allegations of contravention of Rule 173H, with the demand based on a difference between returned defective goods and the goods later cleared without duty. The order noted that the findings below did not fully align with the show cause notice, but held that prima facie the goods cleared were thicker than those received back, indicating a Rule 173H contravention. It also observed that the penalty under Rule 9(2) appeared to exceed the prescribed maximum. As a result, the applicants were directed to deposit Rs. 12,000 towards the penalties within four weeks.

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Issues: Whether, in a stay application under section 35F of the Central Excise Act, 1944, the applicants had made out a case for waiver of pre-deposit when the duty demand arose from alleged contravention of Rule 173H of the Central Excise Rules, 1944 and the penalties were also disputed.

Analysis: The stay plea was considered on the basis of the allegations in the show cause notice and the findings recorded by the lower authorities. The notice proceeded on the ground that the goods cleared without payment of duty did not fall within the category covered by Rule 173H, while the lower authorities upheld the demand on the footing that the goods cleared were of a different dimension and thickness from the defective goods returned by customers. The order records that there was some force in the contention that the finding did not fully match the allegations in the notice, but it also notes that, prima facie, the goods cleared without duty were thicker than the goods received back and that a contravention of Rule 173H was shown. The order further noticed that the penalty under Rule 9(2) appeared to exceed the prescribed maximum limit.

Conclusion: The applicants were directed to deposit Rs. 12,000 towards the penalties and compliance was required within four weeks.

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