2004 (1) TMI 89 - HC - Central Excise

Printing Paste Not 'Manufacture' Under Excise Law; Court Quashes 1994 Order, Rules No Classification Under Tariff Act.

The HC quashed the impugned order dated 31st March 1994, ruling that the preparation of printing paste does not constitute 'manufacture' under Central ... Excisability of the preparation of 'printing paste' - Manufacture of cotton fabrics and man-made fabrics - Printing paste - Evidence - Burden of proof - concept of marketability - HELD THAT:- The show cause notice dated 2nd November, 1992 incorporated at Exh. 'E' issued by respondent No. 3 specifically, states, 'for the purposes of printing of fabric the petitioners require 'printing paste', and the assessee bring duty paid colour from market and mix it up with other material such as chemicals and kerosene. The mixing giving rise to the substance known as 'printing paste' is classifiable under Chapter sub-heading 3204.29 of the Tariff Act'. The second show cause notice dated 4th February, 1993 also incorporates same averments. When the show cause notices were issued the Order No. 2/93, dated 21st April, 1993 issued by the Board wad not in the field. Therefore, the 'printing paste' prepared from formulated, standardised and prepared dyes by simple mixing with other materials bringing into existence a product known as 'printing paste' was treated as 'manufacture' by the respondents for all the time till the clarification issued by the Board could see the light of the day. As a matter of fact, the burden to prove that the printing paste used by the petitioners was not manufactured from the formulated, standardised or prepared dyes by simple mixing with other material was on the Revenue, especially, when the show cause notices issued were pregnant with the admission on the part of the Revenue as indicated in the opening part of this para. The Revenue having chosen to issue show cause notices, burden of proof was on the Revenue. Mr. Rana is not right in contending that the burden of proof was on the petitioners. The burden always lies on the person who asserts that the particular goods are excisable. It lies at first on the party who would be unsuccessful if no evidence at all was given on either side. There is essential distinction between burden of proof and onus of proof. The burden of proof lies upon the person who has to prove a fact and it never shifts, but the onus of proof shifts. Onus means the duty of adducing evidence. Assuming that onus, has shifted on the petitioner, then, the evidence produced by the petitioners has substantially established the link between the material supplied and used by the petitioners. The concept of marketability to which the respondent No. 2 had given go-bye cannot be said to be legal in view of the law laid down by the Apex Court in the case of Bhor Industries Ltd.[1989 (1) TMI 128 - SUPREME COURT] and reiterated in the case of Ambalal Sarabhai Enterprises [1989 (8) TMI 72 - SUPREME COURT]; wherein the Apex Court ruled that marketability is an essential ingredient in order to make the goods dutiable under the Schedule to the Tariff Act. Thus, taking overall view of the matter the impugned order cannot stand to the scrutiny of law and the same is liable to be quashed and set aside. The impugned order dated 31st March, 1994 is thus quashed and set aside. Issues Involved:1. Excisability of the preparation of 'printing paste.'2. Classification of printing paste under the Tariff Act.3. Determination of 'manufacture' and 'marketability' under Central Excise Law.4. Burden of proof regarding excisability and manufacture.Summary:1. Excisability of the preparation of 'printing paste':The petitioners, engaged in manufacturing cotton and man-made fabrics, argued that the preparation of printing paste using various duty-paid organic dyes does not amount to 'manufacture' and is not marketable. The printing paste is a tailor-made item with a limited shelf-life, used only by individual mills.2. Classification of printing paste under the Tariff Act:Initially, the Board directed the classification of printing paste under Chapter sub-heading 3204.29 of the Tariff Act. However, the petitioners contended that the preparation of printing paste from formulated, standardized, or prepared dyes by simple mixing does not amount to 'manufacture' as per Board Order No. 2/93, dated 21st April 1993.3. Determination of 'manufacture' and 'marketability' under Central Excise Law:The respondent No. 2 confirmed the demand for excise duty, holding that the preparation of printing paste amounts to 'manufacture.' The petitioners challenged this, citing the Apex Court judgments in Collector of Central Excise v. Ambalal Sarabhai Enterprises and Bhor Industries Ltd., which emphasized that 'manufacture' and 'marketability' are essential for determining dutiability.4. Burden of proof regarding excisability and manufacture:The petitioners argued that the burden of proof lies on the Revenue to establish that the printing paste was an outcome of 'manufacture.' The Court agreed, stating that the burden of proof lies on the party asserting excisability. The evidence provided by the petitioners sufficiently established that the printing paste was prepared from formulated, standardized, or prepared dyes by simple mixing.Judgment:The Court quashed and set aside the impugned order dated 31st March 1994, ruling that the preparation of printing paste does not amount to 'manufacture' and is not classifiable under Chapter sub-heading 3204.29 of the Tariff Act. The petition was allowed, and the rule was made absolute with no order as to costs.