Modvat credit utilisation on manufacturing waste supported prima facie waiver of pre-deposit and stay of recovery.

Modvat credit taken on inputs was considered usable, on a prima facie basis, against duty on waste and scrap generated during manufacture, where only part of the credit had been used for exported goods. The Modvat scheme had to be read as a whole, including Rule 57A and Rule 57F, and the proviso to Rule 57F(4) did not appear to govern waste generated in the manufacturing process. The absence of mala fides also supported interim protection, so waiver of pre-deposit and stay of recovery were granted subject to a personal bond being furnished within the stipulated time.

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Issues: Whether the appellants were entitled to waiver of pre-deposit and stay of recovery on the ground that the Modvat credit taken on inputs could prima facie be used for payment of duty on waste generated during manufacture, and whether Rule 57F(4) and its proviso barred such utilisation.

Analysis: The appeal arose in a stay application. The disputed demand concerned utilisation of Modvat credit against duty on waste and scrap generated during manufacture, after the appellants had used only part of the credit for exported goods. The applicable Modvat scheme had to be read as a whole, including Rule 57A and Rule 57F. On a prima facie view, the proviso relied upon by the department did not appear to govern waste generated in the course of manufacture. The record also showed absence of mala fides, which supported interim relief.

Conclusion: The appellants were entitled to waiver of the pre-deposit amount and stay of recovery, subject to furnishing a personal bond to the satisfaction of the Commissioner within the stipulated time.

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