Excise valuation follows goods as cleared from the factory; post-clearance pipeline mixing does not by itself amount to manufacture.

Excise duty is to be assessed on goods as cleared from the factory, so SKO removed from the refinery could not be valued as MS/HSD merely because it later inter-mixed in the pipeline. A departmental circular could not override the statutory valuation basis, and the interface quantity remained taxable as SKO at the time of removal. The post-clearance inter-mixing also did not amount to manufacture, as the notice and order did not establish a proper manufacture allegation and the mixing itself did not create a new manufactured product. The duty demand was therefore unsustainable.

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Issues: (i) whether SKO cleared from the refinery and subsequently inter-mixed with MS/HSD in the pipeline was liable to duty as SKO or at the higher depot price applicable to MS/HSD for the interface quantity; (ii) whether the post-clearance inter-mixing of SKO with MS/HSD amounted to manufacture so as to justify duty on the resultant product.

Issue (i): whether SKO cleared from the refinery and subsequently inter-mixed with MS/HSD in the pipeline was liable to duty as SKO or at the higher depot price applicable to MS/HSD for the interface quantity.

Analysis: Duty under the excise scheme was payable on removal of the goods from the factory in the form in which they were cleared. The interface quantity of SKO had been cleared as SKO and later lost its identity only during transportation through the pipeline. The Board circular invoked by the Department suggested adoption of the higher duty basis for intermixed quantity, but such administrative instruction could not prevail over the statutory method of valuation. The Tribunal followed its earlier decision on identical facts and also the principle that assessment must correspond to the goods as cleared from the factory.

Conclusion: The interface quantity of SKO was not liable to duty as MS/HSD, and the demand on that basis was unsustainable.

Issue (ii): whether the post-clearance inter-mixing of SKO with MS/HSD amounted to manufacture so as to justify duty on the resultant product.

Analysis: The show cause notice and the adjudication order did not proceed on a clear manufacture allegation. Even otherwise, clause (iii) of the definition of manufacture was inapplicable because the goods were not those covered by the Third Schedule. Inter-mixing during pipeline transport did not by itself convert the cleared SKO into a manufactured MS/HSD product.

Conclusion: The inter-mixing did not amount to manufacture.

Final Conclusion: The impugned duty demand was set aside and the appeal was allowed, with the assessee succeeding on the central valuation and manufacture issues.

Ratio Decidendi: Excise duty must be determined on the goods as cleared from the factory at the time of removal, and a departmental circular cannot impose a contrary valuation basis or treat post-clearance inter-mixing as manufacture in the absence of statutory support.

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