Pre-deposit waiver for disputed Modvat credit was granted where notification limits did not cover additional customs duty.

Pre-deposit under Section 35F was considered in relation to disputed Modvat credit on imported insulating paper, where the applicants argued that Notification No. 177/86-C.E. did not restrict additional duty paid under Section 3 of the Customs Tariff Act to Rs. 800 per PMT. The analysis relied on Khandelwal Metal and Engineering Works, noting that additional duty of customs under Sections 2 and 3 is not countervailing duty and that the notification proviso did not specifically limit such additional duty. A prima facie case for waiver was therefore established, pre-deposit was dispensed with, and recovery was stayed pending appeal.

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Issues: Whether pre-deposit under Section 35F of the Central Excises and Salt Act, 1944 should be waived in respect of the disputed Modvat credit on imported insulating paper, in view of the restriction in Notification No. 177/86-C.E. and the character of additional duty paid under Section 3 of the Customs Tariff Act, 1975.

Analysis: The applicants sought waiver of pre-deposit on the ground that the notification's restriction of Rs. 800 per PMT applied only to excise duty and special excise duty, and not to the additional duty paid on imported inputs. It was noted that the Supreme Court decision in Khandelwal Metal and Engineering Works had held that additional duty of customs under Sections 2 and 3 of the Customs Tariff Act, 1975 is not countervailing duty, and there was no specific restriction in the proviso to the notification limiting additional duty of customs to Rs. 800 per PMT.

Outcome: A prima facie case for waiver was made out, the requirement of pre-deposit was dispensed with, and recovery was stayed pending the appeals.

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