Presumption of duty-paid goods supports exemption claim when open-market dyes are backed by invoices and dealer certificates.

Base dyes purchased in the open market may ordinarily be presumed to be duty-paid where the excise regime prohibits removal from the factory without payment of duty. The petitioners retained the burden of showing compliance with Notification No. 180/61-C.E., but that burden was satisfied by invoices and dealer certificates consistent with the applicable trade notice. Exemption could not be denied merely because gate passes or direct proof of actual duty payment were unavailable when the surrounding documents supported compliance. On that footing, the demand and the impugned orders were set aside.

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Issues: Whether the petitioners, who purchased base dyes from the open market, were entitled to presume that the goods were duty-paid and thereby claim exemption under Notification No. 180/61-C.E.; and whether the demand for duty could be sustained in the absence of invoices and dealer certificates showing actual payment of excise duty.

Analysis: The exemption notification required that the dyes used in manufacture must be made from dyes on which excise duty or countervailing duty had already been paid. The Court held that although the burden of showing compliance with the notification lay on the petitioners, that burden was discharged. Under Rule 9(1) of the Central Excise Rules, 1944, goods are not to be removed from the factory without payment of duty, and therefore goods available in the open market may ordinarily be presumed to have suffered duty. The petitioners also produced invoices and certificates from dealers, which were consistent with the trade notice requiring such documents. The authorities below ignored this material and proceeded on the erroneous footing that the absence of gate passes or proof of actual payment necessarily defeated the claim.

Conclusion: The petitioners were entitled to the presumption that the base dyes purchased in the open market were duty-paid, and the denial of exemption was unsustainable. The demand and the impugned orders were set aside in favour of the petitioners.

Ratio Decidendi: Goods purchased in the open market may be presumed to be duty-paid where the excise system prohibits removal without payment of duty, and exemption cannot be denied merely because the purchaser cannot produce direct proof of actual duty payment if surrounding documents support compliance.

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