Revenue neutrality and Cenvat credit justified waiver of pre-deposit in a packing-and-labelling duty dispute.

Packing and labelling of imported photographic films was treated as the alleged manufacturing activity under the Central Excise Act, but the appellants showed a substantial prima facie case for waiver because Cenvat credit was available for duty payment on the final product. The record also supported the plea of revenue neutrality, as additional customs duty credit on imported inputs and credit on packing material could offset the disputed duty for part of the relevant period. On that basis, pre-deposit of duty and penalty was waived and recovery was stayed.

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Issues: Whether the appellants were entitled to waiver of pre-deposit and stay of recovery in respect of the duty and penalty demand, having regard to the availability of Cenvat credit and the plea of revenue neutrality.

Analysis: The demand arose from the department's view that the activity of packing and labelling of imported photographic films amounted to manufacture under Section 2(f)(iii) of the Central Excise Act. The record indicated that during the relevant period, credit of additional customs duty paid on imported inputs from DEPB was available for utilisation in payment of duty on the final product for part of the period, and that credit of duty paid on packing material would also be available if the demand were held to be sustainable. On that basis, the appellants had a substantial prima facie case that the duty burden could be neutralised through available credit.

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

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