Cenvat-style credit and captive scrap movement supported prima facie waiver of pre-deposit in excise proceedings.

Duty paid on scrap generated in captive manufacture could be taken as credit, and movement of that scrap to job workers under Rule 57F(3) for conversion into slugs was treated as procedurally permissible on the facts stated. The authority noted that the view that duty could not be paid on goods meant for captive manufacture was incorrect, that Section 4(2) contemplated internal shifting of goods on payment of duty, and that Notification 217/86 did not apply as understood. As the record also suggested no apparent loss of revenue and confusion in the mechanics of Rule 57F(3), the appellant was held to have made out a prima facie case and obtained waiver of pre-deposit and stay of recovery.

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Issues: Whether, on the facts of captive manufacture and movement of scrap and intermediate goods under the excise procedure, the appellant had made out a prima facie case for waiver of pre-deposit and stay of recovery.

Analysis: The order records that the appellant manufactured aluminium containers using slugs, paid duty on scrap generated in the process, took credit of that duty, and sent the scrap to job workers under Rule 57F(3) for conversion into slugs, which were then used in manufacture. The reasoning notes that the assumption that duty could not be paid on goods meant for captive manufacture was incorrect, that Section 4(2) contemplated internal shifting of goods on payment of duty, and that Notification 217/86 would not apply on the facts as understood by the authority. It was also observed that the record showed confusion in the understanding of the mechanics of Rule 57F(3), and that the procedure followed did not appear, prima facie, to have caused any loss of revenue.

Conclusion: The appellant was found to have a prima facie case and was granted waiver of pre-deposit and stay of recovery of the duty confirmed in the proceedings.

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