Modvat credit on exempted goods remained arguable, so pre-deposit and recovery were stayed in interim relief.

Waiver of pre-deposit and stay of recovery were granted where the dispute concerned Modvat credit taken in relation to exempted final products. The assessee had paid duty on the final product only to avail credit, and had disclosed the intention to claim Modvat in the classification list. The department's objection raised a debatable issue on whether duty could be voluntarily paid on exempted goods, especially in light of changing trade notices and departmental practice. The matter was treated as arguable on merits, and hardship to the assessee was considered relevant in granting interim relief.

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Issues: Whether waiver of pre-deposit and stay of recovery should be granted in view of the dispute regarding availment of Modvat credit on exempted final products.

Analysis: The duty had been paid on the final product and the Modvat credit was taken only for that purpose. The assessee had disclosed its intention to avail Modvat in the classification list. The dispute raised by the department turned on whether duty could be voluntarily paid on exempted goods and on the effect of trade notices showing that the departmental stand had changed from time to time. The issue was treated as arguable on merits, and hardship to the assessee was considered relevant while assessing interim relief.

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

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