Captive consumption attracts excise duty when manufacture is complete; retrospective validation of levy upheld as constitutional.

Excise duty on yarn manufactured within the factory and captively consumed in fabric production was held payable because the taxable event under the excise law is manufacture, not removal; Rules 9 and 49 were treated as machinery provisions regulating collection, so intermediate goods remained dutiable even without clearance from the factory. The retrospective amendments to Rules 9 and 49 and the validating provision in Section 51 of the Finance Act, 1982 were upheld as clarificatory and constitutionally valid, as they did not create a new charge or impose impermissible retrospective penal liability. The levy on captively consumed yarn was sustained.

---

---

Issues: (i) Whether yarn manufactured within the factory and consumed captively in the manufacture of fabrics was liable to central excise duty under the charging provision and the unamended Rules 9 and 49 of the Central Excise Rules, 1944. (ii) Whether the amendments to Rules 9 and 49 and Section 51 of the Finance Act, 1982, giving retrospective effect and validation, were valid and constitutional.

Issue (i): Whether yarn manufactured within the factory and consumed captively in the manufacture of fabrics was liable to central excise duty under the charging provision and the unamended Rules 9 and 49 of the Central Excise Rules, 1944.

Analysis: The taxable event under Section 3(1) of the Central Excises and Salt Act, 1944 is manufacture, not removal. Rules 9 and 49 were treated as machinery provisions regulating the time and manner of collection and not as provisions creating or limiting the charge. Intermediate goods manufactured within the factory remained dutiable even if they were not removed from the factory gate and were consumed in the manufacture of final products. The contrary view taken in earlier Delhi decisions was not accepted.

Conclusion: The issue was answered against the assessee and in favour of Revenue.

Issue (ii): Whether the amendments to Rules 9 and 49 and Section 51 of the Finance Act, 1982, giving retrospective effect and validation, were valid and constitutional.

Analysis: The explanations inserted into Rules 9 and 49 were held to be clarificatory of the existing position and not the creation of any new charge. Section 51 of the Finance Act, 1982 was upheld as a valid exercise of parliamentary power to legislate retrospectively and to validate prior collections. The challenges based on Article 14 and Article 20 of the Constitution of India were rejected because the provisions neither imposed an arbitrary burden nor created retrospective criminal liability.

Conclusion: The amendments and the validating provision were held valid and constitutional, against the assessee.

Final Conclusion: The writ petition failed on all substantive grounds, the levy on captively consumed yarn was sustained, and the Court also granted a certificate of fitness to appeal and a temporary stay of its order.

Ratio Decidendi: Under the excise law, liability is attracted by manufacture, while the rules governing removal and collection are machinery provisions; retrospective validating legislation is constitutionally permissible when enacted within legislative competence and when it does not impose impermissible retroactive penal consequences.

---