Captive consumption of loose cigarettes remains excisable; duty upheld while personal penalties were deleted.

Captively consumed loose cigarettes used for empirical testing within the factory remained excisable because manufacture is the taxable event, and removal is only relevant to collection and administration; Rule 93 did not exclude such goods from the duty net. The duty demand was therefore sustained. The personal penalties, however, were not justified on the facts and were set aside. The result was confirmation of duty liability with deletion of the penalties.

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Issues: (i) whether loose cigarettes consumed within the factory for empirical testing were excisable and liable to central excise duty; (ii) whether the personal penalties imposed on the appellant were sustainable.

Issue (i): whether loose cigarettes consumed within the factory for empirical testing were excisable and liable to central excise duty.

Analysis: The Tribunal followed its earlier decision on the same issue and held that the taxable event is manufacture or production, while the timing of removal is only a matter of collection for administrative convenience. Rule 93 was treated as regulating delivery and collection, not as excluding loose cigarettes from excisability. Captive consumption of cigarettes within the factory therefore did not take them outside the duty net, and the demand was sustainable.

Conclusion: The duty demand on the loose cigarettes was upheld against the assessee.

Issue (ii): whether the personal penalties imposed on the appellant were sustainable.

Analysis: The Tribunal noted that in the appellant's earlier matter on the same controversy, the personal penalty had been set aside. On the facts of the present case, it found no justification to sustain the personal penalties imposed under the rules.

Conclusion: The personal penalties were set aside in favour of the assessee.

Final Conclusion: The duty liability was confirmed, but the personal penalties were deleted, resulting in only a partial success for the assessee.

Ratio Decidendi: Where manufacture is complete, duty remains chargeable on captively consumed excisable goods, and packing or delivery requirements governing removal do not exclude such goods from excisability; penalty may still be waived on the facts of the case.

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