Exemption condition on capital goods credit under excise rules supported waiver of pre-deposit and stay of recovery.

Exemption under Notification No. 5/99-C.E. turned on whether the assessee had availed capital goods credit under Rule 57Q in the relevant manufacturing process. The demand was based solely on the allegation that such credit had been taken in earlier years and used during the dispute period. The Tribunal held it prima facie possible that payment of an amount equivalent to the credit taken had cured the alleged breach of the notification condition, and this showed a strong prima facie case against the demand. On that basis, waiver of pre-deposit and stay of recovery of duty and penalty were granted.

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Issues: Whether the assessee had made out a prima facie case for waiver of pre-deposit and stay of recovery of duty and penalty, where the demand arose from denial of exemption under Notification No. 5/99-C.E. on the ground that capital goods credit had been availed under Rule 57Q of the Central Excise Rules, 1944.

Analysis: The exemption notification required, inter alia, that no credit under Rule 57Q of the Central Excise Rules, 1944 should have been availed in the relevant manufacturing process. The demand rested solely on the fact that capital goods credit had been taken in earlier years and used in manufacture during the dispute period. The Tribunal found it prima facie possible to hold that payment of an amount equivalent to the credit taken had nullified the alleged violation of the notification condition, and therefore the assessee had shown a strong prima facie case against the demand.

Conclusion: Waiver of pre-deposit and stay of recovery were granted in favour of the assessee.

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