Exemption certificate misuse and non-disclosure of cancelled funding defeated full waiver of penalty pre-deposit.

The exemption under Notification No. 108/95-C.E. applied only where the project was financed by an international organisation and the prescribed certificate was produced before clearance of the goods. The record showed that World Bank assistance for the project had later been suspended and cancelled, yet this development was not communicated to the manufacturer, and goods continued to be cleared without duty. On that basis, the CESTAT found no strong prima facie case for complete waiver of pre-deposit of the penalty under Rule 209A, because the applicants had facilitated clearance of non-duty-paid goods on the strength of the exemption certificate. The applicants were required to deposit part of the penalty, with the balance waived and recovery stayed pending appeal.

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Issues: Whether the applicants made out a prima facie case for waiver of pre-deposit of the penalty imposed under Rule 209A of the Central Excise Rules, in view of the exemption under Notification No. 108/95-C.E. and the alleged non-disclosure of suspension and cancellation of World Bank assistance.

Analysis: The exemption under Notification No. 108/95-C.E. depended on the project being financed by an international organisation and on production of the requisite certificate before clearance of the goods. The record showed that the project was initially financed by the World Bank but the financial aid was later suspended and cancelled. The applicants did not communicate this development to the manufacturer, with the result that goods continued to be cleared without duty. The Tribunal held that, although the excise duty is payable by the manufacturer, the applicants had facilitated clearance of non-duty-paid goods on the strength of the exemption certificate and had not established a strong prima facie case for complete waiver.

Conclusion: The applicants were not entitled to waiver of the entire pre-deposit. They were directed to deposit Rs. 10 lakhs towards the penalty, and the balance penalty was waived and its recovery stayed during the pendency of the appeal.

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