Excise duty on captive-consumed molasses remains payable where the intermediate product is itself excisable goods.

Molasses used as an intermediate product in a distillery remained liable to central excise duty because duty attaches to manufacture or production of goods, not to ultimate sale or consumption. The article was treated as excisable goods even though it was captively consumed within the same compound for alcohol manufacture. Rules 9 and 49 of the Central Excise Rules did not displace the charging provision in section 3(1); they regulate removal and collection and operate only as procedural provisions. Where the sugar factory and distillery were separate manufacturing processes and the premises and storage were identified, the rules did not bar levy or collection of duty.

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Issues: (i) Whether molasses, used as an intermediate product for captive consumption in the petitioners' distilleries, was liable to central excise duty as an excisable good. (ii) Whether Rules 9 and 49 of the Central Excise Rules barred levy and collection of duty on molasses in the absence of a separately specified place of removal or storage.

Issue (i): Whether molasses, used as an intermediate product for captive consumption in the petitioners' distilleries, was liable to central excise duty as an excisable good.

Analysis: Section 3(1) of the Central Excises and Salt Act, 1944 levies duty on goods manufactured or produced in India. The Court held that molasses, though an intermediate or by-product in the manufacture of sugar, is itself goods and an excisable article. Its use within the same compound as raw material for alcohol did not take it outside the charging provision, because the relevant consideration is manufacture or production, not ultimate sale or consumption.

Conclusion: Liability to excise duty on molasses was upheld and the challenge failed.

Issue (ii): Whether Rules 9 and 49 of the Central Excise Rules barred levy and collection of duty on molasses in the absence of a separately specified place of removal or storage.

Analysis: The Court held that Rule 9 regulates removal and payment of duty and does not negate the liability created by Section 3(1). On the facts, the factory licence and site plan identified the relevant premises and storage tanks, and the distillery and sugar factory were separate processes within the same compound. Rule 49 was treated as supplementary and as fixing the point of collection, not as destroying duty liability on goods already manufactured or produced. The authorities relied on by the petitioners were distinguished on facts, especially where the process was continuous and integrated or the article was not marketable goods at all.

Conclusion: Rules 9 and 49 did not bar levy or collection of duty, and the petitioners' contention was rejected.

Final Conclusion: The writ petitions were dismissed because molasses was held to be dutiable excisable goods and the procedural rules did not prevent collection of duty in the circumstances of captive consumption and separate manufacturing processes.

Ratio Decidendi: An intermediate product which is itself marketable goods is liable to excise duty on manufacture or production, and rules governing removal or collection cannot override the charging section where the process is distinct and not a single continuous integrated process.

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