Excise duty on intermediate yarn applies when it moves from spinning to weaving in a composite mill, not only on factory exit.

Excise duty on intermediate yarn in a composite textile mill was treated as payable when the yarn moved from the spinning department to the weaving department, because duty attaches to manufacture of a marketable dutiable product and the licensed unit for the excisable article, not the entire factory compound, is the relevant place of manufacture. The Central Excise Rules, including the licensing scheme and rule 9, were read to support duty at the stage of intra-factory transfer. Special procedures for composite mills further indicated that yarn consumed within the same mill remained liable on removal from spinning to weaving rather than only on exit from factory premises.

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Issues: Whether excise duty on yarn, being an intermediate excisable product used within the same composite textile mill for manufacture of fabrics, became payable only on removal from the factory premises or on removal from the spinning department to the weaving department.

Analysis: Excise is a duty on manufacture of goods, and an intermediate product that is known to the market and falls within a dutiable item can attract duty even if it is not sold. The scheme of the Central Excise Rules, particularly the licensing provisions and rule 9, was read to mean that the relevant place of manufacture is the licensed unit for the particular excisable article, not the entire factory compound. On that basis, yarn manufactured in the spinning section and taken to the weaving section in a composite mill was treated as removed for excise purposes. The special procedures for composite mills under the rules also supported the view that yarn consumed within the same mill remains subject to duty at the stage of its movement from spinning to weaving.

Conclusion: Excise duty was payable on the intermediate yarn when it was removed from the spinning department to the weaving department, and not only when it left the factory premises.

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