Escrow deposit under exemption notification includes Education Cess; penalty pre-deposit waived in a purely legal dispute.

An exemption notification requiring deposit or investment equivalent to the benefit granted was treated as encompassing the Education Cess component, so that amount was not excluded from the escrow deposit and the duty-related deposit direction was upheld. On the stay issue, the dispute was regarded as purely legal, and penalty was not considered attracted at that stage, so pre-deposit of penalty was waived. The final position was that the appellant had to make the escrow deposit for the duty demand, while the penalty pre-deposit was dispensed with.

---

---

Issues: (i) Whether the amount equivalent to Education Cess was required to be deposited in the escrow account under Notification No. 69/03; (ii) Whether pre-deposit of penalty was required.

Issue (i): Whether the amount equivalent to Education Cess was required to be deposited in the escrow account under Notification No. 69/03.

Analysis: The notification was treated as requiring investment/deposit equivalent to the exemption granted. On that basis, there was no reason to exclude the Education Cess component from the amount to be deposited in the escrow account.

Conclusion: The Education Cess amount was held to be includible in the escrow deposit, and the direction to deposit the duty demand was upheld.

Issue (ii): Whether pre-deposit of penalty was required.

Analysis: The dispute was considered to be purely legal in character, and on that footing penalty was not viewed as attracted at the stage of stay.

Conclusion: Pre-deposit of penalty was waived.

Final Conclusion: The appellant was required to make the escrow deposit for the duty demand, but the penalty pre-deposit was dispensed with.

Ratio Decidendi: Where an exemption notification requires deposit equivalent to the exemption/investment, the Education Cess component is not excluded from the escrow deposit, and penalty pre-deposit may be waived when the dispute is purely legal.

---