Excisable goods and Rule 9(2) liability: cement poles, non-marketability and deliberate non-compliance with excise formalities

Cement concrete poles made to specification and removed as such are treated as excisable goods even if later embedded in the ground or used only by the manufacturer; self-use, non-marketability, job work and state-function arguments do not by themselves exclude duty. Removal without excise compliance attracts Rule 9(2), and deliberate non-disclosure or continued clearance despite duty demands can justify penalty under Rule 173Q, though penalties may be reduced on equitable considerations. The note also records that worker-based exemption claims and inadequate findings on workshop materials required fresh adjudication.

---

---

Issues: (i) Whether cement concrete poles manufactured by the Board were excisable goods and whether the Board could avoid duty on the grounds of non-marketability, job work, state function, or exemption under Notification No. 118/75; (ii) whether the demands were barred by limitation and whether Rule 9(2) applied to the removals; (iii) whether the penalties imposed under Rule 173Q were justified; and (iv) whether the claim for exemption under Notification No. 54/75 and the plea relating to workshop materials required further adjudication.

Issue (i): Whether cement concrete poles manufactured by the Board were excisable goods and whether the Board could avoid duty on the grounds of non-marketability, job work, state function, or exemption under Notification No. 118/75.

Analysis: The poles were distinct manufactured articles made to specification and removed from the place of manufacture as such. Their later embedding in the ground did not alter their character at the time of removal. The fact that they were used only by the Board or were not ordinarily sold in the market did not take them out of the category of goods. The manufacturing activity was carried on within the Board's units under its control, with material, equipment and labour arrangements supplied or directed by the Board, so the Board was the manufacturer and the contractors were not independent manufacturers. The plea of state function failed because excise is levied on manufacture and the constitutional protection of Article 285 did not apply. The exemption under Notification No. 118/75 also failed because the required use had to be in a factory within the meaning of the excise law and the sites where the poles were embedded were not factories.

Conclusion: The poles were excisable goods, the Board was liable as manufacturer, the job-work and state-function pleas failed, and the benefit of Notification No. 118/75 was not available.

Issue (ii): Whether the demands were barred by limitation and whether Rule 9(2) applied to the removals.

Analysis: The cases involved removal of excisable goods without compliance with excise formalities and without assessment. In such circumstances Rule 10 had no application and Rule 9(2) governed the demands. The later incorporation of the time limit into Rule 9(2) and the replacement of Rule 10 by Section 11A did not affect the validity of demands already raised under Rule 9(2). On the facts, the removals were initially clandestine and later amounted to evasion, so the extended five-year period applied. Only in the identified cases requiring restriction did the demand have to be confined to five years from the relevant show-cause notice, and one matter was remanded for fresh consideration including limitation.

Conclusion: Rule 9(2) applied, the demands were substantially within time, and only the specifically identified appeals required restriction of the demand period or remand.

Issue (iii): Whether the penalties imposed under Rule 173Q were justified.

Analysis: The Board did not make a full disclosure, did not comply even after repeated directions, and continued to remove goods despite being told that duty was payable. The plea of bona fide belief was rejected because it was not founded on a reasonable and sincere examination of the law or the facts. The conduct amounted to deliberate defiance and conscious disregard of statutory obligation. At the same time, having regard to the passage of time and the payment of duty, the penalties were moderated to a nominal figure where they had been imposed.

Conclusion: The penalties were justified in principle, but were reduced to Rs. 5,000 in the cases where penalties had been imposed, except where already lower.

Issue (iv): Whether the claim for exemption under Notification No. 54/75 and the plea relating to workshop materials required further adjudication.

Analysis: The exemption under Notification No. 54/75 depended on the number of workers in the factory, and one appeal disclosed a material unresolved plea that the factory had never employed more than 40 workers. The order in that appeal did not deal with the plea, so fresh adjudication was necessary. As to the workshop materials, the record did not contain adequate particulars or discussion to sustain the finding against the assessee.

Conclusion: The appeal involving Notification No. 54/75 was remanded for de novo adjudication, and the portion relating to workshop materials was also set aside for readjudication.

Final Conclusion: The principal levy on the cement concrete poles was sustained, the limitation objections largely failed, the penalties were substantially reduced, and only the specifically identified issues concerning workshop materials and the worker-based exemption were sent back for fresh decision.

Ratio Decidendi: Goods are liable to central excise at the stage of removal if they are manufactured articles, even if made for self-use or later embedded in the earth, and removal without compliance with excise formalities falls within Rule 9(2), with the consequence that deliberate non-compliance may attract penalty under Rule 173Q.

---