1986 (11) TMI 47 - HC - Central Excise

Summary

Issues:
1. Interpretation of Exemption Notification No. 180/61 regarding duty exemption on dyes.
2. Burden of proof on manufacturers to establish payment of excise duty on base dyes.
3. Legal validity of demand for duty recovery based on lack of documents.
4. Justifiability of presumption regarding payment of excise duty on goods purchased from the open market.

Detailed Analysis:
1. The case involved the interpretation of Exemption Notification No. 180/61, which exempted certain dyes from excise duty if manufactured from dyes on which excise duty had already been paid. The petitioners, a partnership firm engaged in manufacturing synthetic organic dyes, claimed exemption under this notification for their products "Rapidfast" and "Rapidogen," classifiable under Item No. 14D of the Central Excises and Salt Act, 1944.

2. The issue of burden of proof arose when the Superintendent of Central Excise issued show cause notices to the petitioners, questioning the exemption claimed due to the absence of documents proving payment of excise duty on base dyes purchased from the open market. The authorities contended that without proof of duty payment, the exemption could not be availed, leading to a demand for duty recovery.

3. The legality of the demand for duty recovery was challenged by the petitioners, arguing that they were justified in presuming duty payment on goods purchased from the open market, as per Rule 9(1) of the Central Excise Rules. The Assistant Collector and the Collector of Central Excise upheld the demand, emphasizing the petitioners' failure to provide documents proving duty payment.

4. The court held that the burden of proof was on the petitioners to establish compliance with the exemption notification. However, it found the authorities' conclusions unsustainable, noting that the petitioners had purchased base dyes from the open market and were entitled to presume duty payment based on established legal provisions. The court cited a similar decision by the Calcutta High Court, emphasizing the impracticality of requiring purchasers to verify duty payment by manufacturers.

5. Additionally, the court highlighted that the petitioners had submitted invoices and certificates from dealers certifying duty payment on the purchased base dyes, as required by a trade notice. Despite this evidence, the authorities failed to consider these documents and solely focused on the lack of specific proof of duty payment, leading to an unjust demand for duty recovery.

6. Ultimately, the court ruled in favor of the petitioners, deeming the orders passed by the authorities illegal and unsustainable. The petitioners were granted relief, and the rule was made absolute, with the direction to discharge the bonds and bank guarantees provided. No costs were awarded in the matter, and the petitioners were entitled to the return of their securities.