Modvat credit on pre-registration invoices and rejected material justified waiver of pre-deposit and stay of duty recovery.

Invoices issued before the deferred registration date were treated as prima facie acceptable for Modvat credit because the Board circular extended the effective date for registration and covered such invoices. The demand based on those invoices was therefore considered prima facie unsustainable. A separate demand concerning rejected and returned material after processing was also regarded as covered by Tribunal decisions recognising rejected material as a usable input and by the rule permitting clearance of inputs on payment of duty. On that basis, the appellant was found to have a strong prima facie case, and pre-deposit was waived with stay of recovery of the demanded duty.

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Issues: Whether the appellant had made out a prima facie case for waiver of pre-deposit and stay of recovery of the demanded duty on the two grounds raised by the department.

Analysis: The duty demand based on invoices issued before the departmental registration requirement was deferred was found to be prima facie unsustainable because the Board circular had extended the effective date for registration and accepted invoices issued by unregistered persons before that date for Modvat credit. The second demand, relating to use of rejected and returned material after processing, was also found to be covered by Tribunal decisions recognising rejected material as usable input and by the relevant rule permitting clearance of inputs on payment of duty.

Conclusion: The appellant was held to have a strong prima facie case, and the requirement of pre-deposit was waived together with stay of recovery of the demanded duty.

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