Modvat credit on fuel for DG-set electricity held only prima facie arguable; partial pre-deposit relief granted.

Modvat eligibility for LSHS and furnace oil used in DG sets to generate electricity for factory use was treated as only prima facie arguable under Rule 57A, and the facts were distinguished from cases of direct fuel use in manufacture. In the stay proceedings, the Tribunal balanced the arguable nature of the claim, financial hardship, and the Revenue's interest, and declined full waiver of pre-deposit. Partial relief was granted instead, with the appellants directed to deposit Rs. 50 lakhs and recovery of the balance stayed on compliance.

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Issues: Whether the appellants were entitled to waiver of the entire pre-deposit in respect of the demand raised on Modvat credit taken on LSHS and furnace oil used in DG sets for generation of electricity used in the factory, and whether a partial pre-deposit should be directed having regard to the arguable nature of the claim and financial hardship.

Analysis: Rule 57A of the Central Excise Rules, 1944 at the relevant time extended Modvat benefit to inputs used as fuel in or in relation to manufacture of final products. The claim based on use of LSHS and furnace oil in DG sets for generation of electricity was treated as arguable, but the facts were distinguished from cases where fuel was directly used in the furnace for manufacture. The subsequent amendment by Notification No. 11/95-C.E. (N.T.) dated 16-3-1995 was also noticed. Balancing the prima facie case, the plea of financial hardship, and the interest of Revenue, complete waiver was not granted.

Conclusion: The appellants were directed to deposit Rs. 50 lakhs, and recovery of the remaining demand was stayed upon compliance.

Ratio Decidendi: In a stay application, where the claim on Modvat eligibility is only prima facie arguable, the Tribunal may grant only partial waiver of pre-deposit by balancing financial hardship against the interests of Revenue.

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