Pre-deposit waiver for Export Oriented Unit allowed where duty demand under exemption notification was prima facie doubtful.

A 100% Export Oriented Unit obtained waiver of pre-deposit and stay of recovery because the demand for duty and penalties under Notification No. 1/95-C.E. was not free from doubt at the prima facie stage. The unit had applied to modify its Letter of Permission to include weaving of fabrics before clearing texturised yarn for use in grey fabric weaving, and the subsequent permission, together with the timing of the clearances, supported a prima facie case against insisting on pre-deposit. Waiver of pre-deposit was granted and recovery was stayed pending disposal of the appeals.

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Issues: Whether waiver of pre-deposit of duty and penalties, with stay of recovery pending appeal, was justified in the circumstances of the case.

Analysis: The applicants were a 100% Export Oriented Unit and had cleared texturised yarn for use in weaving grey fabrics after applying for modification of the Letter of Permission to include weaving of fabrics. The subsequent permission and the proximity of the clearance to the application for modification were treated as factors supporting a prima facie view that the demand, based on alleged breach of Notification No. 1/95-C.E., dated 1-4-1995, was not free from doubt at this stage.

Conclusion: Waiver of pre-deposit of the confirmed duty and imposed penalties was granted and recovery was stayed pending disposal of the appeals.

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