Pre-deposit waiver denied where input showed prima facie nexus with exempted products under credit reversal rules.

A prima facie case for full waiver of pre-deposit under Section 35F was not made out because hydrochloric acid had a direct and dominant role in the process leading to exempted final products. On the admitted facts, the input was used in extracting mother liquor from bones, which was further processed into Phosphoryl A and Phosphoryl B, showing a prima facie nexus with the manufacture of exempted goods and attracting the credit reversal provisions under Rule 57CC, Rule 57AD and Rule 6 of the Cenvat Credit Rules. The plea for complete waiver was rejected and pre-deposit was directed as a condition for hearing the appeal.

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Issues: Whether the appellant had made out a prima facie case for waiver of pre-deposit under Section 35F of the Central Excise Act, and whether, on the facts, the input was used in the manufacture of exempted final products so as to attract the demand under the relevant credit reversal provisions.

Analysis: The controversy arose from the demand of 8% of the sale price of exempted products cleared during the relevant period under Rule 57CC and Rule 57AD of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2001. On the admitted process, hydrochloric acid was used in extracting mother liquor from bones, and the mother liquor was then processed into Phosphoryl A and Phosphoryl B, while the insoluble residue moved to gelatin production. The direct and dominant role of hydrochloric acid in the stream leading to the exempted products showed a prima facie nexus with their manufacture. The appellant therefore failed to establish a prima facie case for full waiver, and no financial hardship was pleaded.

Conclusion: The prayer for complete waiver was rejected, and the appellant was directed to pre-deposit Rs. 50 lakhs as a condition for hearing the appeal.

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