Pre-deposit waiver and natural justice scrutiny in an excise dispute over conversion of granules into powder.

Conversion of LLDPE granules into powder was treated as manufacture under Chapter 39, and the stay application was considered in that context. The Tribunal found no prima facie violation of natural justice because a reply had been filed to the show cause notice and the Chairman had appeared and been heard before the Commissioner. The margin of profit issue was left for final hearing. Taking account of the overall facts, including the availability of Modvat credit, the Tribunal granted only partial waiver of pre-deposit and required deposit of duty as a condition for stay of recovery.

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Issues: Whether the applicants were entitled to waiver of pre-deposit and stay of recovery of the confirmed duty and penalty, and whether a prima facie violation of principles of natural justice was made out.

Analysis: The demand had been confirmed on the footing that conversion of LLDPE granules into powder amounted to manufacture under Note 6(b) of Chapter 39 of the Central Excise Tariff Act, 1985. On the stay application, the Tribunal found no prima facie breach of natural justice, having regard to the reply filed to the show cause notice and the appearance and hearing of the Chairman before the Commissioner. The plea relating to margin of profit was treated as a matter for consideration at the stage of final hearing. Considering the overall facts and the plea of availability of Modvat credit, the Tribunal directed partial deposit as a condition for relief.

Conclusion: Partial waiver of pre-deposit was granted. The applicants were directed to deposit Rs. 6 lakh towards duty within 12 weeks, and on such deposit the balance duty and penalty stood waived with recovery stayed pending appeal.

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