Modvat credit reversal and repacking did not defeat a strong prima facie case for waiver of pre-deposit.

Imported aromatic chemicals cleared after Modvat credit reversal, including consignments repacked and relabelled, were argued by the department to amount to fresh manufacture attracting duty on removal under section 4. The appellants countered that reversal of credit and existing authority on repacking, labelling and relabelling meant manufacture was not established, and that the Chapter 29 note supported their position. CESTAT treated the reversal of credit issue as covered in the appellants' favour by a Larger Bench view and found the chapter note supportive, leading to a strong prima facie case on merits and limitation. Full waiver of pre-deposit was granted and recovery stayed pending final disposal of the appeal.

---

---

Issues: Whether the appellants were entitled to full waiver of pre-deposit and stay of recovery pending the appeal on the strength of a prima facie case on merits and limitation.

Analysis: The dispute concerned duty on imported aromatic chemicals removed after availment of Modvat credit on the CVD paid, with some consignments repacked and relabelled. The asserted basis of demand was that such removal amounted to fresh manufacture attracting duty on the value at the time of removal under section 4, while the appellants relied on reversal of credit and on authorities indicating that repacking, labelling and relabelling would not necessarily amount to manufacture. The issue of reversal of credit was treated as covered in favour of the appellants by the Larger Bench view, and the applicability of the chapter note relating to Chapter 29 was also considered supportive of the appellants. On that basis, the appellants were held to have made out a strong prima facie case, both on merits and on limitation.

Conclusion: Full waiver of the requirement of pre-deposit was granted and recovery was stayed pending final disposal of the appeal.

---