Modvat credit on capital goods for an oxygen plant supported waiver of pre-deposit and stay of recovery.

Credit on components and capital goods used to fabricate and set up an oxygen plant was held prima facie admissible under the Modvat framework where duty had been paid on the components, parts or accessories used in manufacture. The Tribunal applied its earlier view that credit could not be denied merely because the finished plant was not separately dutiable, and noted that the approach had been affirmed by the High Court. On that basis, the applicant showed a strong prima facie case and obtained waiver of pre-deposit, with recovery stayed pending appeal.

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Issues: Whether, in a stay application, the applicant had made out a prima facie case for waiver of pre-deposit of duty, interest and penalty where credit was denied on capital goods used in setting up an oxygen plant.

Analysis: The dispute arose from denial of credit on components and capital goods used in the fabrication and setting up of an oxygen plant leased to the applicant. The Tribunal relied on its earlier decision that under the relevant Modvat scheme provisions, credit could not be denied merely because the finished plant itself was not separately subjected to duty, so long as duty had been paid on the components, parts or accessories used in its manufacture. The Tribunal also noted that the earlier view had been affirmed by the High Court, and that the exemption framework supported admissibility of credit on capital goods used in the factory for manufacture of final dutiable goods.

Conclusion: The applicant established a strong prima facie case and was entitled to waiver of pre-deposit and stay of recovery pending appeal.

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