Excise duty on manufacture, not clearance date, governs exemption for goods made during a duty-free period.

Excise duty on khandsari sugar was held to depend on the date of manufacture, not the date of clearance. Goods produced during a duty-free period did not become dutiable merely because they were removed after the exemption had ceased. The analysis also treated Rule 9 as inapplicable under the special scheme, so the demand based on that rule could not be sustained. On that basis, the duty demand and penalty were found unsustainable.

---

---

Issues: Whether excise duty and penalty could be demanded on khandsari sugar manufactured during a period of exemption but cleared after the exemption had ceased to operate, and whether the invocation of Rule 9 was valid in the circumstances.

Analysis: Excise duty is a duty on manufacture or production, so the relevant date for exemption is the date on which the goods are manufactured, not the date on which they are removed from the factory. Where goods are produced during a duty-free period, the later withdrawal of exemption does not make them dutiable merely because clearance takes place afterwards. The prior decision relied upon also treated the operation of Rule 9 as excluded in the relevant special scheme, making the demand under that rule unsustainable.

Conclusion: The demand of duty and the penalty were unsustainable, and the appeal was allowed.

---