Duty-paid input condition under concessional notification upheld where the Department failed to prove non-duty-paid yarn.

A concessional duty notification conditioned on the use of duty-paid yarn could not be denied on the basis of assumption alone. The record did not show that the yarn procured from the market was non-duty paid, and the estimated evasion noted at seizure was insufficient to displace that position. In the absence of proof from the Department that the raw material was non-duty paid, the reduced duty demand was properly sustained, and the corresponding reduction in redemption fine and penalty also stood supported by the record.

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Issues: Whether the reduced duty demand, redemption fine and penalty were sustainable where the Department had not established that the yarn used as raw material was non-duty paid, and the benefit of Notification No. 3/2001-C.E. dated 1-3-2001 was extended.

Analysis: The concessional rate under Notification No. 3/2001-C.E. depended on use of duty-paid yarn. The seized goods were treated as clandestinely removed, but the duty evasion recorded at the time of seizure was only an estimate. The record did not contain evidence that the yarn procured from the market was non-duty paid. In the absence of such proof, the onus to establish that the raw material was non-duty paid remained on the Department. The reduction of duty demand, and the consequential reduction in redemption fine and penalty, was therefore supported by the record.

Conclusion: The reduction of the duty demand, redemption fine and penalty was upheld.

Final Conclusion: The departmental challenge failed, and the order of the Commissioner (Appeals) was sustained in full.

Ratio Decidendi: Where an assessee claims the benefit of a concessional notification contingent on duty-paid inputs, the Department must prove that the inputs were non-duty paid before denying the benefit or enhancing the duty demand.

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