Excise duty follows manufacture, not later clearance, so goods made during exemption could not be taxed after withdrawal.

Excise duty under the Central Excises and Salt Act is attracted at the stage of manufacture or production, not by later storage or removal. Where flax fabrics were manufactured during a period of total exemption, no duty became payable merely because the exemption was withdrawn before clearance. Rule 8 could exempt the goods from duty leviable at manufacture, and Rules 9 and 9A did not permit the levy to be shifted to the point of stock removal in these circumstances. The demand was therefore not sustainable, and the impugned orders were liable to be quashed.

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Issues: Whether excise duty could be levied on flax fabrics manufactured during a period when the goods were wholly exempt from duty but cleared only after the exemption was withdrawn.

Analysis: Excise duty under Section 3 of the Central Excises and Salt Act, 1944 is a levy on the manufacture or production of goods. Rule 8 permits exemption from the duty leviable on excisable goods, while Rules 9 and 9A govern the time and manner of payment and the rate applicable on removal. The Court held that where goods were manufactured at a time when they were totally exempt, no duty was leviable on them merely because they remained in stock and were removed after the exemption was rescinded. The later withdrawal of exemption could not convert non-taxable goods into dutiable goods, and the levy could not be shifted to storage or clearance in such a situation.

Conclusion: The demand of excise duty was not sustainable; the exemption protected the goods manufactured during the exempt period, and the impugned orders were liable to be quashed.

Ratio Decidendi: For goods wholly exempt at the time of manufacture, excise duty cannot be imposed later merely because the exemption is withdrawn before clearance, since the taxable event is manufacture or production and not subsequent storage or removal.

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