Rule 173H interim relief granted where repacking and relabelling of returned goods did not justify immediate duty recovery.

Goods brought back into the factory under Rule 173H for repacking and relabelling may attract interim protection where the assessee has followed the prescribed procedure by filing declarations and maintaining separate accounts. The Tribunal noted a prima facie case that the activity was undertaken only to correct defects in rejected goods, and that the department's treatment of repacking and relabelling as manufacture under Note 2 to Chapter 38 did not justify immediate demand at the clearance stage. On that basis, the applicants were granted waiver of pre-deposit and recovery of duty was stayed pending appeal.

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Issues: Whether waiver of pre-deposit of duty and stay of recovery should be granted in a case involving goods brought back into the factory under Rule 173H for repacking and relabelling, where the department treated the activity as manufacture under Note 2 to Chapter 38 of the Central Excise Tariff Act, 1985.

Analysis: The applicants had, prima facie, followed the procedure prescribed under Rule 173H by filing declarations and maintaining separate accounts for rejected goods brought back into the factory. The order under challenge treated repacking and relabelling as manufacture under Note 2 to Chapter 38, but the materials before the Tribunal showed a prima facie case that duty should not be demanded at the stage of clearance of goods brought in only for correcting defects. On that basis, the Tribunal held that the applicants had made out a case for interim relief.

Conclusion: Waiver of pre-deposit was granted and recovery of the duty was stayed pending the appeal.

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