Full Judgment
2. In the impugned order the Commissioner confirmed demand of duty amounting to Rs. 22,17,334/- and also imposed equivalent penalty on the assessees. The basis for this confirmation was that the assessees were receiving in their factory defective goods on which duty had earlier been paid. These goods were received back in terms of the procedure prescribed under Rule 173H. The belief of the Commissioner in the order was during the course of the repairs entirely new goods had come into existence which goods attracted payment of Central Excise duty. It was his conclusion that a clearance without payment of duty in terms of Rule 173H that had been done by the assessees were with the intent to evade duty.
3. In the appeal memorandum the claim made is that where the parts are found to be defective, such parts are replaced and in doing so the Modvat credit availed of on such parts is reversed. It is their claim that just because these parts do not form part of the defective goods earlier supplied, the procedure under Rule 173H does not become defective. It is, therefore, claimed that the entire operation is within the parameters of the said rule and therefore the allegation that what was cleared were new goods different from the defective goods received was not correct. It is claimed that the fact that to maintain the colour scheme etc., replaced goods being different from the defective goods could not alter the situation.
4. We have considered the submissions. What appears is that the defective goods received back are completely dismantled. The defective parts are replaced and the goods are re-assembled. It could be said that original identity of the goods is lost. The assessees themselves in their appeal memorandum have said in doing the repairs the colour matching has to be done and, therefore, parts which are not defective may also be changed. In this situation it would be an arguable issue whether the goods are repaired or replaced by fresh goods.
5. In the habitual absence of the assessees this point cannot be settled on perusal of the memorandum. However, we are of the opinion that the assessees have failed to make a prima facie case in their favour. We, therefore, direct M/s. Bajaj Electricals Ltd. to deposit the entire duty of Rs. 22,17,334/- as a pre-condition for hearing of their appeal. On such pre-deposit being made, the condition to deposit the penalty shall stand waived and its recovery stayed. The applicants are granted a time of six weeks from the receipt of this order to make the deposit.