K L. Rekhi, Member (T)

1. The appellants are aggrieved of the demand for central excise duty of Rs. 3,42,084 confirmed against them for the period 4-5-76 to 31-3-77. The demand relates to recovery of base stage duty on grey (i.e., plain or non-texturised) acrylic yarn and arose out of the peculiar wordings of Item 18 of the Central Excise Tariff and the exemption Notification No. 125/75-CE, dated 12-5-75. In order to facilitate the understanding of the issues involved in this appeal, we reproduce below the Tariff entry as well as the exemption notification as in force at the material time :-

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"(11) In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of Notification No. 105/75-CE, dated 30-4-75, the Central Government hereby exempts textured yarn of the description specified in col. (3) of the Table below and falling under such sub-items of Item No. 18 as are specified in the corresponding entries in col. (2) of the said Table, from so much of the duty of excise leviable thereon as is in excess of the duty specified in the corresponding entries in col. (4) of the said Table.

Vide Notfn. No. 125/75-CE, dated 12-5-75."

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2. The appellants stated that during the relevant period they were engaged m dyeing yarn. They used to receive undyed acrylic yarn from the traders in the market and return the sams to them after dyeing on payment of job charges. Jung the dyeing operation, because of passage of steam, the hand-knitted yarn acquired a degree of fluffiness or bulk which, according to the Department, amounted to texturising. The appellants cleared the dyed yarn on payment of texturising duty of Rs. 10.00 per kg. and this duty is not the subject matter of R appeal. Subsequently the Department raised the aforesaid demand of Rs. 3,42,084 for recovery of the base grey stage duty from them on the ground mat the appellants had failed to prove that such duty had also been paid on the yarn which was dyed and texturised. It is this demand which they were now contesting. Their arguments before us were twofold :

(1) Central Excise duty was a tax on manufacture of goods and the liability to pay the said duty was on the manufacturer of the goods. The appellants were admittedly not the manufacturers of the grey yarn. They could not, therefore, be called upon to pay the base stage duty. The Department was seeking to interpret the scheme of the Tariff in a manner which converted it into sales tax. This was illegal and unconstitutional. When the Tariff entry and the notification were examined in the background of this constitutional position of the nature of excise duty, it would be quite evident that the whole scheme of payment of duty on base yarn and texturised yarn was structured to facilitate the working of composite mills which were spinning the base yarn and were further texturising it also. The appellants were only dyeing or texturising the yarn on job work basis and there was no liability on them to pay the yarn duty.

(2) Placing reliance on the Delhi High Court judgment in Sulekh Ram's case [1978 E.L.T. 3. 525 (Delhi)], the appellants claimed that the material available in the market had to be deemed to have paid the duty leviable thereon and a customer purchasing the said material from the market could not be called upon to prove the duty paid character of that material. The aforesaid judgment on this point had not been over-ruled by any subsequent judgment. The appellants asserted that the onus was on the Department to prove that base stage duty on the yarn received by the appellants from the market had not been paid and even were the Department was able to discharge that onus, the demand for base stage duty should have to be made against the spinning mill which manufactured the base yarn and not the appellants.

The appellants added that besides the purchase challans, they had submitted some gate passes also to the Central Excise authorities and it was for t