2008 (8) TMI 713 - AT - Central Excise

Summary

Issues:
1. Challenge against the condition of pre-deposit of duty, penalty, and confiscation under Section 111(o) of the Customs Act, 1962 for using inputs in Research and Development activities in a 100% EOU.

Analysis:
The case involved a challenge against the requirement of pre-depositing a substantial amount of duty, penalty, and confiscation under Section 111(o) of the Customs Act, 1962. The applicant, a 100% EOU importing raw materials for manufacturing vaccines and Sera products, used a portion of the inputs for Research and Development activities. The dispute arose when the lower authority concluded that the applicant was liable to pay various duties and cess as the Research and Development activities were not specified in a particular notification. The applicant argued that the inputs were used to enhance the quality of the manufactured goods for export, relying on precedents like the Kudremukh Iron Ore Ltd. case and Bhansali Engg case.

The advocate for the applicant contended that the duty-free inputs/raw materials imported by a 100% EOU were meant for production purposes, including Research and Development activities to improve the quality of manufacturing. On the other hand, the SDR argued that the inputs should only be used in final products and not for Research and Development activities, advocating for the pre-deposit of the entire duty and penalty amount. After considering the arguments from both sides and examining the records, the Tribunal found that the Research and Development activities using the inputs were conducted within the factory premises declared as a 100% EOU. The applicant consistently maintained that the inputs were utilized to enhance the quality of the exported goods. The Tribunal noted that the issue centered around the use of inputs within the Research and Development lab of the 100% EOU to improve the quality of the finished goods for export. Since the inputs were consumed within the EOU and the applicant established a prima facie case for the waiver of the amounts involved, the Tribunal allowed the application for the waiver of pre-deposit and stayed the recovery until the appeal's disposal.