Burden of proving non-payment of base-yarn duty rests on the revenue, not the processor receiving textured yarn.

Textured yarn processed from base yarn attracted exemption under a notification that linked duty to the base yarn only if such duty had not already been paid. The department, not the processor, had to verify whether duty on the base yarn had in fact been discharged, because excise duty is ordinarily a levy on manufacture and the liability rests on the manufacturer of the excisable goods. A purchaser or processor could presume that yarn received from the market was duty-paid on removal, and the revenue could not shift the burden of proof to the respondent merely on an unverified assumption. The differential duty demand was therefore unsustainable.

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Issues: Whether, in respect of textured yarn produced out of base yarn, the revenue could demand differential excise duty from the processor on the footing that duty on the base yarn had not been paid, and whether the burden lay on the respondent to prove prior payment of such duty.

Analysis: Excise duty is a duty on manufacture and the liability ordinarily rests on the manufacturer of the excisable goods. The relevant notification granted exemption to textured yarn produced out of base yarn to the extent that the duty would be the duty for the time being leviable on the base yarn, if not already paid, plus a specified amount per kilogram. The structure of the levy and the notification showed that the existence of prior payment of base-yarn duty was a matter for verification by the department, and not a fact specially cast upon the processor to establish in the first instance. In the ordinary course, a purchaser or processor receiving yarn from the market could presume that the base yarn had been duty-paid before removal from the factory, and the department was required to proceed against the manufacturer if duty had in fact not been discharged. The respondent having disclosed the relevant suppliers and manufacturers, the failure of the revenue to verify those facts could not justify shifting the burden onto the respondent.

Conclusion: The burden was not on the respondent to prove payment of duty on the base yarn, and the demand of differential duty was not sustainable. The decision was in favour of the assessee.

Final Conclusion: The appeal failed because the respondent was not liable to be fastened with the differential duty merely on an unverified assumption that base-yarn duty had not been paid.

Ratio Decidendi: Where a levy on processed goods is expressed as the duty leviable on the base material, if not already paid, plus an additional amount, the department must establish non-payment of the base duty and cannot shift that burden onto the processor when the normal commercial presumption is that the goods were duty-paid on removal by the manufacturer.

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