Foundational facts must be proved before invoking Rule 4(2) liability for molasses procurement

A fiscal demand under Rule 4(2) of the Central Excise Rules, 2002 cannot be sustained unless the Revenue first pleads and proves the foundational fact that the molasses were procured from khandsari sugar factories. The notice in this matter made no such allegation and produced no supporting evidence, yet the adjudicating authority shifted the burden to the assessee to disprove liability. Applying the principle that the party asserting liability must establish the jurisdictional facts, the demand for excise duty, interest and penalty failed. The impugned order was set aside, the appeal was allowed, and consequential relief followed.

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Issues: Whether the demand of excise duty, interest and penalty on molasses could be sustained under Rule 4(2) of the Central Excise Rules, 2002 without any assertion or proof that the molasses had been procured from khandsari sugar factories, and consequently whether the impugned order could be upheld.

Analysis: Rule 4(2) fastens liability on the procurer only where molasses are produced in a khandsari sugar factory. The show cause notice invoked that provision, but it did not even assert that the appellant had procured molasses from khandsari sugar factories, much less support that allegation with evidence. The adjudicating authority nevertheless confirmed the demand by placing the burden on the appellant to disprove the allegation. In a proceeding of this nature, the person asserting liability must prove the foundational facts on which the demand rests. The principles reflected in Sections 102 and 103 of the Indian Evidence Act, 1878 require the Revenue, and not the assessee, to establish the factual basis for invoking the rule. The absence of any allegation or proof on the essential jurisdictional fact meant that the demand could not survive.

Conclusion: The demand under Rule 4(2), along with the connected interest and penalty, was unsustainable and the assessee succeeded.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where a fiscal demand depends on a special liability provision, the Revenue must plead and prove the foundational facts attracting that provision, and the assessee cannot be burdened to disprove an allegation that was never properly made or established.

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