Case: Union of India and Others Vs. Garware Nylons Limited and Others

6. The respondents-assessees manufacture "Nylon Yarn" and "Nylon Twine". They are doing so ever since 1962. Under the First Schedule, Item 18 of the Act excise duty is payable in respect of "Nylon Yarn" as specified therein. The notification issued under Rule 8 of the Excise Rules provided that "Nylon Yarn", which is meant for use in the manufacture of fishing nets and parachute cords is exempt from the payment of so much of excise duty leviable under Item 18 as is in excess of Rs 4 per kg. The assesses contended that "Nylon Twine" manufactured by them is used for the purpose of making fishing nets. Prior to 1975 they were allowed to clear Nylon Twine manufactured by them on payment of excise duty as specified under the above exemption notification. Thereafter, when the new item, viz. Item 68 (residuary entry) was introduced in the Act, it was contended by the Excise authority that Nylon Twine manufactured by the assessees was not covered by Item 18. According to the Revenue Nylon Twine and Nylon Yarn are two different items and Item 18 takes within its fold Nylon Yarn only and not Nylon Twine. The authorities claimed excise duty on "Nylon Twine" under Item 68. The assessees paid such duty under protest. Thereafter, the application filed by the assessees for refund before the Assistant Collector failed. He passed an order to that effect on 28-5-1976. The appeal filed was rejected by the Appellate Collector on 28-9-1976. Similarly the Central Government rejected the revision by order dated 31-10-1979. It is thereafter that the assessees approached the High Court of Bombay for refund of the amount paid under protest. A Division Bench of the High Court heard and disposed of the petition by judgment and order dated 9-4-1980. Sujata Manohar, J. delivered the leading judgment and Masodkar, J., though for different reasoning, agreed with the conclusion of Sujata Manohar,Sujata Manohar, J., after referring to the following materials - viz. - Encyclopaedia Britannica, Vol. X (abridged version), the Indian Standards Institution Standard bearing No. AIS 332 of 1967 wherein the expressions "Twine and Yarn" were dealt with, the Indian Standards Institution Standard bearing No. IS 1402-767 relating to "netting for fishing", the Manual called Netting Materials for Fishing Gear, the manual published by the Food and Agriculture Organisation of the United Nations, the order received by the assessees from the Director of Fisheries, Madras, two affidavits, one from the Managing Director of Maharashtra Rajya Machimar Sekhari Sangh Limited and another from a partner of Maharashtra Fishing Material Company, concluded thus, in paragraph 14 of theThere is, however, sufficient material on record which goes to show that nylon twine manufactured by the petitioners has been treated as a kind of nylon yarn by the people in the trade. It is commonly considered as yarn. Hence it can be classified under Item 18. The respondents have failed to establish that nylon twine must be taxed under Item 68, as it is not covered by Item 18 of the First Schedule. The respondents are the taxing authorities, and they must show that the item in question is taxable in the manner claimed by them... the burden is on the taxing authorities to show that the item in question is taxable in the manner claimed by them."learned Judge, therefore, directed the Revenue to refund to the assessee the excess amount collected from them as Central excise duty on the basis that "Nylon Twin" falls under Item 68 of the First Schedule to the Act

Court's reasoning:
9. We do not think it is necessary, especially in this batch of cases, to refer in detail to the decisions cited by the Revenue or the text books and the literature of the Indian Standards Institution and the Manual published by the Food and Agriculture Organisation, United Nations, as to what is meant by twine, yarn, "netting twine" etc. referred by the High Court. In this case, clinching evidence is afforded to demonstrate that trade and industry which deals with the goods, consider "Nylon Twine" as a kind of "NylonIn this case, apart from the meaning given to the words Yarn, Twine etc., in the standard works referred to by the High Court, two items of evidence stand out prominent and clinch the issue. The first is, an order received by the assessee from the Director of Fisheries, Madras which goes to show that Nylon Twine is considered as a type of Nylon Yarn used for making fishing nets. The second is, two affidavits filed by the assessees before the authorities - one from the Managing Director of Maharashtra Rajya Machimar Sekhari Sangh Limited and another from a partner of Maharashtra Fishing Material Company, wherein it is stated that Twine is a category of Yarn. What is more - the assessees made available the above persons who have sworn to the affidavits for cross-examination at the time of the hearing of the applications, but the Revenue did not cross-examine them. The trade enquiry received by the assessees and also the affidavits conclusively point out that Nylon Twine is considered as a kind of "Nylon Yarn" in the particular trade by persons conversant with the subject-matter. The Revenue has not let in any material to theIn our view, the conclusion reached by the High Court is fully in accord with the decisions of this Court and the same is justified in law. The burden of proof is on the taxing authorities to show that the particular case or item in question is taxable in the manner claimed by them. Mere assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority. Especially in a case as this, where the claim of the assessee is borne out by the trade enquiries received by them and also the affidavits filed by persons dealing with the subject-matter, a heavy burden lay upon the Revenue to disprove the said materials by adducing proper evidence. Unfortunately, no such attempt was made. As stated, the evidence led in this case conclusively goes to show that Nylon Twine manufactured by the assessees has been treated as a kind of Nylon Yarn by the people conversant with the trade. It is commonly considered as Nylon Yarn. Hence, it is to be classified under Item 18 of the Act. The Revenue has failed to establish the contrary.We concur with the reasoning and conclusion of the High Court. There is no substance in these appeals.