Pre-deposit waiver in excise dispute: prima facie merits and natural justice justified only partial stay, not complete dispensation.

In an interim stay application concerning raw naphtha used in fertiliser manufacture, the Tribunal found a prima facie case for substantial, but not complete, waiver of pre-deposit because part of the material was shown to have been used directly in ammonia and fertiliser production, while only the disputed balance related to steam and electricity generation. It also noted a possible breach of natural justice in the manner the order was passed. Balancing the prima facie merits against revenue protection, the Tribunal refused full dispensation, directed a limited pre-deposit, granted stay of recovery for the balance, and fixed the appeal for early hearing.

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Issues: (i) whether the appellants were entitled to full waiver of pre-deposit in respect of the demand relating to raw naphtha used in generation of steam and electricity for manufacture of fertiliser, and (ii) whether the manner in which the order was passed and the prima facie merits justified complete dispensation with pre-deposit.

Issue (i): Whether the appellants were entitled to full waiver of pre-deposit in respect of the demand relating to raw naphtha used in generation of steam and electricity for manufacture of fertiliser.

Analysis: The exemption claimed was under Notification No. 75/84-C.E. The material placed before the Tribunal indicated that part of the naphtha was used directly in manufacture of ammonia and fertiliser, while only the disputed balance related to use in generation of steam and electricity. On the figures furnished and not disputed at that stage, the demand could not be sustained in full for purposes of interim relief, and the appellants had made out a case for substantial waiver.

Conclusion: The appellants were entitled to partial waiver, not complete waiver, of pre-deposit.

Issue (ii): Whether the manner in which the order was passed and the prima facie merits justified complete dispensation with pre-deposit.

Analysis: The record suggested a prima facie failure to afford hearing and, therefore, a possible breach of natural justice. The Tribunal also took note of the Supreme Court authority relied on for the proposition that the claim required consideration at the interim stage. Balancing the rival contentions, the Tribunal found it appropriate to protect the revenue by directing a limited deposit while granting stay for the balance and fixing the matter for early hearing.

Conclusion: Complete dispensation was refused and a deposit of Rs. 10 lakhs was directed, with stay of recovery for the balance.

Final Conclusion: The stay application was allowed only in part by granting substantial waiver of pre-deposit and stay of recovery for the balance, while directing a limited deposit and an early hearing of the appeal.

Ratio Decidendi: In an interim stay proceeding, where the record shows a prima facie case for exclusion of part of the demand and indicates possible non-observance of natural justice, the Tribunal may grant only partial waiver and protect the revenue by directing a limited pre-deposit.

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