Judgment:
1. By the reference application, the applicant, viz. C.C.E., Chandigarh, has submitted that the following question of law arise out of the order of the Tribunal: "Whether the burden of proof that the goods are not duty paid in the case of conditional exemption is on the Department or on the assessee." 2. Arguing the Reference application, Shri D.K. Nayyar, the ld.. JDR, submitted that the burden of proof was on the assessee in as much as the claim for deemed Modvat credit is filed by him. He submitted that it is the claimant who has to substantiate his claim and not the Department as held in the impugned order. He, therefore, prays that a question of law arises out of the order and, therefore, reference should be made to the High Court.
3. Heard the oral submissions of the ld.. JDR, perused the written submissions made by the Respondents. We note that the Government of India in its order, dated 7-4-1986 used two sets of words, clearly recongisable as 'being non-duty paid' and 'charged to NIL rate of duty'. Reading these two sets of words clearly indicates that the Assessee has to take a stand that the notification was conditional, meaning thereby there were circumstances in the notification in which certain type of goods were required to pay duty and, therefore, once a stand is taken by the assessee that the goods are duty paid, undoubtedly burden shifts on the Department to prove that the goods in dispute are non-duty paid. The second set of words 'charged to NIL rate of duty' is very clear as this will be evident from the GP 1s produced.
Once the assessee has taken the stand that the duty has been paid on the goods, the Department is bound to conduct enquiries and prove the opposite.
4. We note that the condition has been introduced by the Government which is within its competence according to the language of the proviso which enables to issue directions subject to conditions and restrictions as deemed fit. Modvat scheme itself postulates duty paid specified inputs brought into the factory for use in the manufacture or in relation to manufacture of specified final products and credit of duty paid on such product being utilised for payment of duty on the final product. Pivotal to this scheme is the payment of duty on inputs.
It is to ensure pivotal requirements that first Proviso mandates that inputs must be received in the factory under the cover of gate passes, AR 1 or Bill of Entry or other prescribed documents evidencing payment of duty. While there could be inputs in respect of which duty has been paid but it may not be possible to posses such documentary evidence of payment of duty and manufacturers who use such inputs may be deprived of the benefit of Modvat scheme. Deemed Modvat credit is to give this class of users of such inputs that second proviso has been introduced.
There is nothing in the proviso to Rule 57G(2) to show any intention to extend the benefit to those specified goods whose use as inputs in the manufacture of specified goods on which excise duty has actually not been paid. The purpose of the second proviso is to empower the Government to implement a deeming provision i.e. a provision to deem that the inputs are duty paid. The intention is not to deem that inputs which actually did not suffer duty but inputs which suffer duty. The purpose is to ensure benefit to those who use inputs in the manufacture on which duty has actually been paid, but it might not be possible to produce duty paying documents.
5. We also note that it is necessary to find the mischief sought to be avoided by deemed proviso to Rule 57G(2) in the Government Order, dated 7-4-1986. The mischief has disentitled Modvat credit on duty paid inputs brought to the factory on account of non-possession or inability to produce documents like Gate Passes etc. evidencing payment of duty.
The mischief could not have been overcome by stipulating that credit is available even if duty has not been paid on inputs. For that would be again the pivotal element of this scheme if duty could not be paid and has not been paid. The only way of overcoming the mischief is dispensing with the requirement of documents evidencing payment of duty. If there is a general dispensation of such documents, this would affect the scheme and can be misused also. Therefore, it became necessary to ensure that concession would apply in cases where circumstances are such that it is safe to proceed on the basis that duty must have been paid. This is the reason why the second proviso which must be considered before the Government can issue direction.
6. We note that there can be only four contingencies in which duty is not paid on goods. They are - (i) no duty is prescribed or NIL rate of duty is prescribed for the goods in the Schedule to the Tariff Act; (ii) Schedule of Tariff Act prescribes rate of duty, but duty has been wholly exempted; (iii) goods are not cleared by the manufacturer; and (iv) goods are cleared clandestinely evading duty.
7. Item (i) makes it clear - the duty is not payable and therefore goods will be non-duty paid. Item (ii) the goods are recognisable as duty is not to be paid. Item (iii) is not relevant because duty is chargeable only when goods are cleared. Item (iv) is not relevant.
Therefore, the terms used in this order are 'clearly recognisable as being non-duty paid' include all inputs on which duty has not been paid, that duty has actually not being paid for any reason. Therefore, in cases where the notification is conditional, the onus is on the Department to prove that the goods are clearly recognisable as non-duty paid. In this case, the admitted position is that there was a conditional notification in respect of the waste and scrap and, therefore, there is no point of law involved. In the result the reference application is rejected.