Excise duty on in-process material fails where goods remain within the factory and are not removed

Excise duty under the Central Excises and Salt Act, 1944 was chargeable in the prescribed manner by reference to removal from the place of manufacture. Rules 9 and 49 of the Central Excise Rules, 1944 applied that principle by making duty payable on removal of excisable goods from the factory, not while they remained within the manufacturing premises as part of a continuous process. Sliver consumed entirely within the same factory as in-process material was not removed from the place of manufacture, so duty could not be levied or recovered on that use.

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Issues: Whether excise duty could be levied and collected on sliver used within the factory as an in-process material when there was no removal from the place of manufacture under Rules 9 and 49 of the Central Excise Rules, 1944.

Analysis: Section 3 of the Central Excises and Salt Act, 1944, read with Section 4, makes excise duty chargeable and collectible in the prescribed manner with reference to removal from the place of manufacture. Rules 9 and 49 provide that duty becomes payable on removal of excisable goods from the place where they are produced or manufactured, and not while they remain within the factory in a continuous process. The sliver in question was consumed within the same factory premises and was not removed from the place of manufacture. On that basis, the earlier view that collection of excise duty cannot arise unless the goods are removed from the factory was applied.

Conclusion: Excise duty was not leviable or recoverable on the sliver so used within the factory, and the challenge to the levy succeeded.

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