Exemption notification burden of proof: auction-purchased scrap could not be denied duty relief without departmental proof it was non-duty paid.

Territorial jurisdiction was upheld because the impugned demand and adjudicatory orders were passed at Kanpur, giving rise to the material cause of action for the writ petitions. On the exemption issue, the court applied the Central Excise Act, the rules, and the notification to hold that excise duty is attracted at the stage of manufacture and clearance, while the notification deems inputs duty paid unless the Department proves they are clearly recognizable as non-duty paid. Mere auction purchase of railway scrap did not, by itself, justify denial of the exemption. The impugned orders were quashed and the notification benefit was held available.

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Issues: (i) Whether the writ petitions were maintainable before the Principal Bench at Allahabad on the ground of territorial jurisdiction; (ii) whether the petitioners were entitled to the benefit of Notification No. 202/1988-C.E. dated 20-5-88 as amended by Notification No. 33/1992-C.E. dated 1-3-1992 in respect of the auction-purchased railway scrap used as inputs.

Issue (i): Whether the writ petitions were maintainable before the Principal Bench at Allahabad on the ground of territorial jurisdiction.

Analysis: The impugned demand and adjudicatory orders were passed at Kanpur and were the immediate cause of grievance. The fact that the scrap had earlier been auctioned at Barabanki did not displace the material cause of action arising from the orders sought to be quashed. Territorial jurisdiction was therefore tested with reference to the place where the impugned orders were made and the injury arose.

Conclusion: The writ petitions were maintainable before the Principal Bench at Allahabad, and the preliminary objection to jurisdiction failed.

Issue (ii): Whether the petitioners were entitled to the benefit of Notification No. 202/1988-C.E. dated 20-5-88 as amended by Notification No. 33/1992-C.E. dated 1-3-1992 in respect of the auction-purchased railway scrap used as inputs.

Analysis: On a combined reading of Section 3(1) and Section 3(1A) of the Central Excise Act, 1944 with Rules 7 and 9 of the Central Excise Rules and the exemption notification, excise duty is attracted at the stage of manufacture and clearance by the manufacturer or person liable under the rules. The goods were not shown to be clearly recognizable as non-duty paid. Under the explanation to the notification, stocks of inputs are deemed to be duty paid unless the Department establishes that they are non-duty paid. Mere auction by the railway did not discharge that burden, and the authorities below erred in denying the exemption on the assumption that the scrap had not suffered duty.

Conclusion: The petitioners were entitled to the exemption benefit, and the denial of the notification was unsustainable.

Final Conclusion: The impugned orders were quashed and the exemption under the notification was declared available to the petitioners.

Ratio Decidendi: Where an exemption notification deems inputs to be duty paid unless they are clearly recognizable as non-duty paid, the burden lies on the Department to prove the contrary; auction sale of used excisable goods, by itself, does not justify denial of the exemption.

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