By-product treatment in LPG manufacture can justify waiver of pre-deposit and stay of recovery under Modvat rules.

Lean gas produced as an inevitable by-product in LPG manufacture may support a prima facie case for interim relief where the demand is traced to Rule 57CC and is argued not to constitute duty or Modvat credit. On that footing, the recovery machinery under Rule 57I or Section 11A is treated as not prima facie available, and the assessee's undertaking to reverse credit may also support waiver of pre-deposit and stay of recovery. The note reflects that such relief is strengthened where the applicant is a Government of India undertaking and the disputed amount is not shown to be recoverable as duty.

---

---

Issues: Whether pre-deposit of duty and penalty should be waived and recovery stayed on a prima facie view that lean gas was a by-product arising in the manufacture of LPG and that the amount demanded under Rule 57CC was not recoverable under Rule 57I or Section 11A.

Analysis: The applicant manufactured LPG and the lean gas emerged as an inevitable result of the processing of natural gas. On the material before it, the lean gas could prima facie be viewed as a by-product, and there was substance in the contention that the amount required under Rule 57CC was not duty or Modvat credit. In that view, the recovery machinery under Rule 57I was not prima facie available. The undertaking to reverse the credit and the fact that the applicant was a Government of India undertaking also supported interim relief.

Conclusion: Pre-deposit of the duty and penalty was waived and their recovery was stayed in favour of the appellant.

Ratio Decidendi: Where the assessee shows a prima facie case that the exempted product is only a by-product of the manufacturing process and the amount demanded under Rule 57CC is not recoverable as duty or credit, waiver of pre-deposit and stay of recovery are justified.

---