Burden of proving non-payment of base yarn duty lies on the department before demanding differential excise duty from the processor.

Where differential excise duty on textured yarn depended on whether duty had been paid on the base yarn, the department bore the burden of proving non-payment before raising demand against the processor. Since the assessee was not the manufacturer of the base yarn, it could reasonably assume that base duty had been discharged unless the department established otherwise. The processor was not required to produce direct proof of actual payment by the base yarn manufacturer. On that reasoning, the demand for differential duty against the assessee was unsustainable.

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Issues: Whether, in a demand for differential excise duty on textured yarn under Tariff Item 18(ii) and Notification No. 125/75, the burden lay on the assessee to prove that duty on the base yarn had already been paid, or on the department to establish non-payment.

Analysis: The duty structure under Tariff Item 18(ii) made the liability on textured yarn depend on the duty leviable on the base yarn, if not already paid. The assessee was not the manufacturer of the base yarn and, in the absence of proof to the contrary, could legitimately assume that duty on the base yarn had been paid before removal. The department, therefore, had to verify non-payment and proceed against the manufacturer if necessary. The assessee was not required to produce proof of actual payment of base duty by the manufacturer, and the demand could not rest merely on the assessee's inability to prove such payment.

Conclusion: The burden of proving non-payment of duty on the base yarn lay on the department, not on the assessee. The differential duty demand against the assessee was unsustainable.

Ratio Decidendi: Where excise duty on a processed product is linked to the duty leviable on the base material, and the processor is not the manufacturer of that base material, the department must prove that base duty had not already been paid before demanding differential duty from the processor.

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