Artificial splitting of manufacturing units justified limited waiver of pre-deposit and stay of recovery in excise dispute.

Strong prima facie evidence of artificial splitting of four manufacturing units into separate entities to claim duty exemption led the Tribunal to refuse full waiver of pre-deposit under Section 35F of the Central Excise Act, 1944. Common directors and family ownership, shared infrastructure and records, inter-linked operations, and payments made by one unit for another supported the view that the units functioned as one factory. The Tribunal therefore directed deposit of the duty demand within the stipulated time, while waiving pre-deposit of interest and penalty and staying recovery of those amounts until disposal of the appeals.

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Issues: Whether the appellants made out a prima facie case for waiver of pre-deposit under Section 35F of the Central Excise Act, 1944, and stay of recovery, in the light of the allegation that the four manufacturing units were artificially split and were functioning as one factory to avail duty exemption under the relevant notifications.

Analysis: The record showed common directors, common ownership by members of the same family, common boiler and tool room, common maintenance of accounts and attendance registers, shared raw materials and conveyor systems, inter-connected digesters, and instances of one unit making payments on behalf of another. The evidence also indicated that some units were not independently functioning during the relevant periods while production and clearances were still shown in their names. On this material, the Tribunal formed a prima facie view that the units were being run as one factory and were split into separate entities to claim exemption. In such circumstances, full waiver of pre-deposit was not justified.

Conclusion: The appellants were directed to pre-deposit the duty amounts confirmed against them within the stipulated time, while the pre-deposit of interest and penalty was waived and recovery thereof stayed till disposal of the appeals.

Ratio Decidendi: Where the record discloses strong prima facie evidence of artificial fragmentation of a common manufacturing unit into separate entities to obtain duty exemption, the Tribunal may refuse full waiver of pre-deposit and require deposit of the duty demand, while granting limited waiver for the remaining components.

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