Quality control testing inputs supported interim waiver of pre-deposit and stay of recovery despite denied customs exemption.

Imported raw materials drawn only for quality control testing and kept separately under the Drugs & Cosmetics Rules, 1945 were treated as giving the assessee a strong prima facie case for interim protection, despite denial of exemption under Notification No. 21/2002-Cus. The tribunal therefore waived pre-deposit of duty and penalty and stayed recovery pending appeal. The operative point is that prima facie compliance with regulatory requirements for testing use can justify interim relief against coercive recovery even where the claimed customs exemption has been by the lower authorities.

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Issues: Whether the appellant was entitled to waiver of pre-deposit and stay of recovery of duty and penalty in view of the denial of exemption under Notification No. 21/2002-Cus. for imported raw materials drawn for quality control testing.

Analysis: The application concerned imported inputs taken out only for quality control testing and kept separately, as required under the relevant Drugs & Cosmetics Rules, 1945, and not used in the manufacture of the final product. On that basis, a strong prima facie case was found for grant of interim relief notwithstanding the denial of the notification benefit by the lower authorities.

Conclusion: The requirement of pre-deposit of duty and penalty was waived and recovery was stayed pending appeal, in favour of the assessee.

Ratio Decidendi: Where imported inputs are shown prima facie to have been used only for quality control purposes and kept separately in compliance with the applicable regulatory requirements, interim waiver of pre-deposit and stay of recovery may be granted pending adjudication of the appeal.

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