Revenue-neutral duty dispute justified waiver of pre-deposit where credit would accrue to the transferee division.

Where disputed duty on transferred inputs, work-in-process, finished goods and capital goods would prima facie be available as Modvat credit to the transferee division, the transaction is treated as revenue neutral. On that basis, the Tribunal held that insistence on pre-deposit of duty and penalty was not warranted and dispensed with the pre-deposit.

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Issues: Whether the demand gave rise to a prima facie case for dispensing with pre-deposit of duty and penalty on the ground that the transaction was revenue neutral.

Analysis: The applicants contended that even if duty were paid on the transferred inputs, work-in-process, finished goods and capital goods, the same would have been available as Modvat credit to the transferee division. The Tribunal found, on a prima facie view of the record and the cited decisions, that the exercise appeared to be revenue neutral. In such circumstances, insistence on pre-deposit was not warranted.

Conclusion: Pre-deposit of duty and penalty was dispensed with, and the stay petition was allowed.

Ratio Decidendi: Where the disputed duty, if paid, would be available as credit to the transferee and the exercise is prima facie revenue neutral, pre-deposit of duty and penalty may be waived.

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