Separate excise demand on component cleared as part of finished machinery was unsustainable, with the penalty also falling

Where an air-conditioner had already been treated as part of the finished stamping, charging and pushing machinery, and duty on the composite machinery was paid after apportionment of value, its separate clearance could not be treated as removal of inputs as such. The demand under Rule 57F(i)(ii) of the Central Excise Rules, 1944 was therefore unsustainable, and the connected penalty also failed because it depended on that demand.

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Issues: Whether duty could be demanded on the air-conditioner on the footing that it was cleared as such, and whether the penalty based on that demand could survive.

Analysis: The air-conditioner had already been treated in the later order as a part of the stamping, charging and pushing machinery, and duty on the finished machinery had been paid after apportionment of value. In that situation, treating the clearance of the air-conditioner separately as removal of inputs as such was not justified. The demand under Rule 57F(i)(ii) of the Central Excise Rules, 1944 therefore could not be sustained, and the connected penalty also fell with the demand.

Conclusion: The duty demand and the penalty were set aside in favour of the assessee.

Ratio Decidendi: Where a component is treated as part of the finished machinery and duty on the composite product has been discharged, a separate demand on the same component as clearance of inputs as such is unsustainable.

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