Pre-notification stock not liable to excise duty when levy arose only on later clearance under deeming fiction.

Stock of ball bearings manufactured and lying in inventory before Notification No. 11/2006-CE (NT) could not be subjected to excise duty merely because clearance occurred after the deeming provision came into force. Where the goods were fully manufactured before the levy or deemed manufacturing fiction applied, the later date of clearance did not create a taxable event. On that basis, the stock as on 31.5.2006 was not liable to duty, and the related interest and penalties were also unsustainable.

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Issues: Whether stock of bal bearings lying with the assessee before Notification No. 11/2006-CE (NT) became operative could be subjected to excise duty, interest and penalties on clearance after the notification came into force.

Analysis: The stock in question was already in existence before the relevant notification introduced the deemed manufacturing treatment applicable to packing, repacking and labelling activity. A duty levy cannot be fastened on goods that were complete and lying in stock before the taxable event arose merely because their clearance took place later. The reasoning followed the principle that goods manufactured when no duty was leviable cannot be subjected to duty at the time of later clearance after the levy comes into force.

Conclusion: The stock of bal bearings lying as on 31.5.2006 was not liable to excise duty under Notification No. 11/2006-CE (NT), and the duty, interest and penalties were unsustainable.

Ratio Decidendi: Goods fully manufactured before the introduction of the relevant levy or deeming fiction cannot be charged to duty merely because they are cleared after the levy becomes applicable.

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