CENVAT credit utilised on alleged non-manufactured clearances may be treated as reversed for stay-stage pre-deposit relief.

At the stay stage, utilisation of CENVAT credit for payment of duty on goods found prima facie not to have been manufactured was treated as a reversal of that credit, so further pre-deposit was waived for the main appellant, subject to a deposit of penalty. The order reasoned that insisting on another deposit would amount to double recovery where no duty liability was shown on the alleged clearances. For the connected appellant, the amount already deposited was treated as full compliance with the pre-deposit requirement under section 35F, and no further deposit of penalty was directed. A separate concurring view disagreed with equating fraudulent invoice-based credit use with reversal and noted possible section 11D implications.

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Issues: (i) Whether, at the stay stage, the credit taken by the assessee and utilised for payment of duty could be treated as reversed, warranting waiver of further pre-deposit for the main appellant; (ii) Whether the amount already deposited by the connected appellant was sufficient compliance for the purpose of pre-deposit under section 35F.

Issue (i): Whether, at the stay stage, the credit taken by the assessee and utilised for payment of duty could be treated as reversed, warranting waiver of further pre-deposit for the main appellant.

Analysis: The order records a prima facie view that, even on the Revenue's case, the final products were not actually manufactured and no duty liability arose on such alleged clearances. In that situation, utilisation of the credit for payment of duty on non-manufactured goods was treated as a reversal of the credit. The order also notes that forcing a further deposit would amount to double recovery, and refers to earlier decisions supporting the view that once such credit stands utilised towards duty payment, no further demand of the same credit is justified at the interim stage.

Conclusion: Further pre-deposit was not directed on this footing, but the appellant was required to deposit Rs. 30 lakhs towards penalty as a condition for stay.

Issue (ii): Whether the amount already deposited by the connected appellant was sufficient compliance for the purpose of pre-deposit under section 35F.

Analysis: The connected appellant had already deposited approximately Rs. 16 lakhs, representing the entire duty confirmed against it. On that basis, the order treated the amount as sufficient compliance for admission and dispensed with further pre-deposit of penalty.

Conclusion: No further pre-deposit was required from the connected appellant.

Final Conclusion: The stay applications were disposed of by granting full waiver to the connected appellant and conditional waiver to the main appellant, with a limited deposit of penalty directed in the latter case.

Ratio Decidendi: At the interim stage, credit utilised for payment of duty on goods found prima facie not to have been manufactured may be treated as reversed, and pre-deposit can be waived or moderated accordingly under the statutory stay power.

Concurring Opinion: Member (T) concurred in the operative result, but disagreed with the proposition that fraudulent utilisation of credit through invoices is equivalent to reversal of credit. The separate opinion emphasised that such conduct is materially different and may attract section 11D liability, though no different operative direction was made.

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