Captive consumption and excise duty: intermediate goods deemed removed for duty, while non-levy demand escaped short-levy limits.

Cushion compound captively consumed in the same factory for manufacture of tread rubber with cushion backing was treated as separately dutiable under Tariff Item 16A(2), because the product had already been held to fall within that item and a retrospective amendment deemed such goods to be removed immediately before internal consumption. The contention that it was only an intermediate product not liable to duty therefore failed. The demand under Rule 9(2) of the Central Excise Rules, 1944 was also sustained, as that rule then carried no built-in limitation and Rule 10, which dealt with short levy, did not apply to a case of non-levy.

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Issues: (i) Whether the product described as cushion compound, when captively consumed inside the factory for manufacture of tread rubber with cushion backing, was separately dutiable under Tariff Item 16A(2). (ii) Whether the demand raised under Rule 9(2) of the Central Excise Rules, 1944 was barred or otherwise unsustainable, and whether Rule 10 applied.

Issue (i): Whether the product described as cushion compound, when captively consumed inside the factory for manufacture of tread rubber with cushion backing, was separately dutiable under Tariff Item 16A(2).

Analysis: The product had already been held by the Kerala High Court, in proceedings involving the same appellant, to fall within Tariff Item 16A(2) and to be liable to excise duty even when captively consumed. Independently, the retrospective amendment introduced by Notification No. 20/82-C.E. and section 51 of the Finance Act, 1982 created a deeming fiction that goods produced in a factory and consumed in the same place for further manufacture are to be treated as removed immediately before such consumption. The contention that the article was only an intermediate product and therefore not excisable could not survive this legal position.

Conclusion: The product was separately dutiable, and the challenge on captive consumption failed against the assessee.

Issue (ii): Whether the demand raised under Rule 9(2) of the Central Excise Rules, 1944 was barred or otherwise unsustainable, and whether Rule 10 applied.

Analysis: For the relevant period, Rule 9(2) contained no built-in limitation, and Rule 9(1) was not confined only to clandestine removal. Rule 10 was held inapplicable because it dealt with short levy, whereas the present case involved non-levy. The demand and the consequential orders were therefore not vitiated on the grounds urged.

Conclusion: The demand under Rule 9(2) was sustainable, and Rule 10 did not assist the assessee.

Final Conclusion: The appeal failed on all material grounds and the excise demand was upheld.

Ratio Decidendi: Goods produced in a factory and consumed within the same factory for further manufacture can be treated as removed for excise purposes where the governing provision or retrospective amendment so deems, and a demand for non-levy is not governed by the short-levy limitation applicable to a different rule.

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