Excise duty fails without proof of manufacture; consequential penalty also falls when the principal demand collapses.

Excise duty under Section 3 of the Central Excise Act, 1944 cannot be sustained without credible evidence of manufacture and supporting factory infrastructure. Where the record fails to show machinery, a factory, or any actual manufacturing facility, the duty demand falls for want of proof of excisable production. A consequential penalty on a co-appellant under Rule 209A of the Central Excise Rules, 1944 also fails once the principal duty demand is unsustainable. The adjudication was set aside in entirety, leaving no surviving duty or penalty liability.

---

---

Issues: (i) Whether the demand of central excise duty could be sustained against the appellant when manufacture and factory infrastructure were not established by reliable evidence. (ii) Whether the penalty imposed on the co-appellant under Rule 209A of the Central Excise Rules, 1944 could survive once the principal demand failed.

Issue (i): Whether the demand of central excise duty could be sustained against the appellant when manufacture and factory infrastructure were not established by reliable evidence.

Analysis: Duty under Section 3 of the Central Excise Act, 1944 arises only on manufacture of excisable goods. The definition of manufacturer under Section 2(f) and the concept of factory under Section 2(e) assume the existence of manufacturing activity and supporting infrastructure. The record did not disclose any cogent or credible evidence showing that the appellant had machinery, a factory, or any manufacturing facility to produce the goods in question. In the absence of proof of manufacture, the allegation could not be sustained.

Conclusion: The duty demand against the appellant was not sustainable and was set aside.

Issue (ii): Whether the penalty imposed on the co-appellant under Rule 209A of the Central Excise Rules, 1944 could survive once the principal demand failed.

Analysis: The penalty on the co-appellant was consequential to the finding against the main appellant. Once the foundation of manufacture and duty liability failed, the basis for penal action also disappeared.

Conclusion: The penalty on the co-appellant was not sustainable and was set aside.

Final Conclusion: The appeals succeeded and the adjudication was set aside in entirety, leaving no surviving duty or penalty liability.

Ratio Decidendi: Excise duty and consequential penalty cannot be sustained unless manufacture of excisable goods in a factory is proved by credible evidence.

---