Modvat credit on leased capital goods failed prima facie, leading to refusal of full pre-deposit waiver.

Capital goods obtained on lease do not qualify for Modvat credit under Rule 57R(3), so a claim based on leased procurement was treated as weak on merits. Non-disclosure of the lease arrangement to the Revenue also undermined the limitation objection and supported invocation of the extended period. On those facts, no prima facie case was found for unconditional waiver of pre-deposit, and full stay relief was refused. Partial relief was nevertheless granted by requiring deposit of a reduced amount while staying recovery of the balance duty and the entire penalty during the appeal.

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Issues: Whether waiver of pre-deposit of duty and penalty could be granted in full in a case involving denial of Modvat credit on capital goods taken on lease, and whether a prima facie case existed on merits and limitation.

Analysis: The claim for Modvat credit was examined against Rule 57R(3), under which capital goods obtained on lease, hire purchase, or any arrangement other than direct purchase do not qualify for credit. The record also showed that the fact of lease procurement had not been disclosed to the Revenue at any stage, which negatived the contention on limitation and supported invocation of the extended period. In view of these circumstances, the applicants were found to have no prima facie case either on merits or on limitation for unconditional stay.

Conclusion: Unconditional waiver of pre-deposit was declined, but partial relief was granted by directing deposit of a reduced amount and staying recovery of the balance duty and entire penalty during the appeal.

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