Limited legal fiction for excise duty recovery cannot be extended to claim small scale industry exemption.

A legal fiction treating a procurer of Khandsari molasses as a manufacturer was created only for duty recovery under the Central Excise Rules. That fiction could not be extended beyond its limited purpose to satisfy the requirement of manufacture in a factory under the small scale industry exemption notification. On that basis, the procurer was not entitled to the exemption, and the relief granted earlier was set aside with the adjudication orders restored.

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Issues: Whether a procurer of Khandsari molasses, deemed to be a manufacturer for the limited purpose of duty recovery under Rule 7A and Rule 9C of the Central Excise Rules, 1944, can claim small scale industry exemption available to manufacturers under the relevant exemption notification.

Analysis: The legal fiction created by the amendment to the Central Excise Rules treated the procurer as the manufacturer only for the limited purpose of collecting duty on Khandsari molasses. Such a fiction could not be enlarged beyond its intended field. The exemption notification required manufacture in a factory, and a procurer who merely received Khandsari molasses for use could not satisfy that condition. Full effect to the fiction did not justify extending it to an exemption regime that the rule-making amendment never intended to confer.

Conclusion: The procurer was not entitled to the small scale industry exemption. The legal fiction was confined to duty collection and could not be extended to claim exemption.

Final Conclusion: The order granting relief to the assessees was set aside and the adjudication orders were restored, leaving the Revenue successful in the appeals.

Ratio Decidendi: A statutory legal fiction must be confined to the purpose for which it is created and cannot be extended to confer exemption benefits that are outside its intended scope.

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