Diversion of duty-free molasses from declared cattle-feed manufacture sustains duty demand, while separate proprietor penalty is unsustainable.

Duty-free molasses obtained under Chapter X and Rule 196 of the Central Excise Rules, 1944 was found, on the available records and surrounding evidence, to have been diverted rather than actually consumed in the manufacture of cattle feed; the evidence of alleged purchasers and suppliers, low electricity use, and the unproved generator-hire claim supported duty liability, and the demand was sustained. A separate penalty on the proprietor of the proprietary concern was not legally sustainable because the unit was a proprietary concern, so that personal penalty was set aside.

---

---

Issues: (i) Whether molasses obtained duty-free under Chapter X and covered by Rule 196 of the Central Excise Rules, 1944 had been used in the manufacture of cattle feed so as to avoid duty liability; (ii) Whether the penalty imposed on the proprietor of the proprietary concern was sustainable.

Issue (i): Whether molasses obtained duty-free under Chapter X and covered by Rule 196 of the Central Excise Rules, 1944 had been used in the manufacture of cattle feed so as to avoid duty liability.

Analysis: The available records and surrounding evidence did not establish actual manufacture of cattle feed in the quantities shown. The materials relied upon by the Department, including statements of alleged purchasers and suppliers, the improbably low electricity consumption, and the failure to substantiate the claim of generator hire, showed that the molasses was diverted and not consumed for the declared manufacturing purpose. The maintenance of registers with only stray signatures of State excise officers was insufficient to prove actual consumption in manufacture.

Conclusion: The duty demand on the molasses was correctly upheld against the assessee.

Issue (ii): Whether the penalty imposed on the proprietor of the proprietary concern was sustainable.

Analysis: Since the unit was only a proprietary concern, the separate imposition of penalty on the proprietor was not legally sustainable distinct from the concern itself.

Conclusion: The penalty on the proprietor was set aside.

Final Conclusion: The duty demand was sustained, but the separate personal penalty on the proprietor was deleted, leaving the outcome only partly adverse to the assessee.

Ratio Decidendi: Where exempted goods procured for a specified manufacturing use are shown by reliable evidence to have been diverted and not consumed in the declared manufacture, duty liability arises, but a separate penalty on a proprietor is not sustainable where the concern is a proprietary unit.

---