Excise exemption on re-rollable scrap products can survive non-recovery upstream, while time-barred recovery rules cannot shift duty downstream.

Bars and rods made from re-rollable scrap were treated as exempt from excise duty under Notification No. 206/63 because the phrase referring to duty already paid was construed to mean duty legally payable at the prior stage, not proof of actual recovery from the intermediate manufacturer. The exemption therefore could not be denied merely because the earlier stage omitted payment. Recovery from the downstream purchaser also failed: Rule 9(2) did not apply where clearance was with excise knowledge, Rule 10 was time-barred, and Rule 10A could not be used residually where Rule 10 governed. The departmental demand was unsustainable.

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Issues: (i) Whether bars and rods manufactured from re-rollable scrap were exempt from excise duty under Notification No. 206/63 dated 30-11-1963 when the duty on the scrap had not in fact been recovered from the intermediate manufacturer. (ii) If the exemption was unavailable, whether the duty could be recovered from the petitioner under the rules invoked by the department.

Issue (i): Whether bars and rods manufactured from re-rollable scrap were exempt from excise duty under Notification No. 206/63 dated 30-11-1963 when the duty on the scrap had not in fact been recovered from the intermediate manufacturer.

Analysis: The duty of excise is a levy on goods manufactured or produced, and under the statutory scheme the burden is ordinarily intended to be borne at the manufacturing stage before removal from the factory premises. The notification exempted iron and steel products made from re-rollable scrap on which the appropriate amount of duty had already been paid. Read with the levy-and-collection machinery of the Act and Rules, that expression was construed as referring to duty which ought to have been paid at the prior stage, not as requiring the purchaser to prove actual prior payment by the earlier manufacturer. The court treated the exemption as part of the same taxing scheme and held that purchasers could not be denied the benefit merely because of an omission by the earlier manufacturer or the department.

Conclusion: The exemption was available to the petitioner, and the bars and rods were not liable to duty on that ground.

Issue (ii): If the exemption was unavailable, whether the duty could be recovered from the petitioner under the rules invoked by the department.

Analysis: Recovery from the petitioner could not be sustained under Rule 9(2) because the goods were not clandestinely removed but were cleared with the knowledge and consent of the excise authorities. Rule 10 could not support the demand because the attempted recovery was beyond the prescribed period of limitation, and Rule 10A, being residuary, could not be used where Rule 10 applied. The scheme of the Rules did not permit shifting the unrecovered duty to the petitioner in the manner attempted by the department.

Conclusion: The demand could not be recovered from the petitioner under Rule 9(2), Rule 10, or Rule 10A.

Final Conclusion: The exemption was upheld and the departmental demand and consequential orders were set aside.

Ratio Decidendi: In a fiscal exemption tied to goods on which duty has already been paid, the expression may be construed to cover duty that was legally payable at the prior stage, and recovery cannot be shifted to a downstream purchaser where the goods were cleared with departmental knowledge and the applicable limitation for recovery has expired.

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