Excise duty follows manufacture, and disguising cloth as rags after production does not defeat tax liability.

Excise duty attaches to manufacture, and subsequent alteration of the goods does not erase the liability. Where sound cloth was cut into shorter pieces and marked as rags to avoid duty, the goods retained their true character as manufactured cloth, and the attempt to describe them as rags was ineffective. The contention that duty could arise only on removal from the factory was rejected because the levy is triggered by manufacture, even if recovery may occur at clearance. The demand and penalties were therefore sustained against the manufacturer.

---

---

Issues: Whether excise duty was payable on the originally manufactured sound cloth despite its subsequent cutting and marking as rags, and whether liability to duty arose only on removal from the factory premises.

Analysis: Excise duty is a levy on manufacture, though the rules may permit recovery at the stage of clearance or removal. The liability does not cease merely because the manufacturer subsequently manipulates the goods so as to give them the appearance of another category. Where sound cloth is manufactured and then deliberately cut into shorter pieces and marked as rags to avoid duty, the true character of the goods remains that of the originally manufactured cloth. The record showed a continuing practice of such conversion to evade duty, and the goods seized were not genuine rags but sound cloth disguised as rags. The contention that duty could arise only on removal and not on goods lying in the premises was therefore rejected.

Conclusion: The duty was rightly held payable on the manufactured cloth, and the challenge to the demand and penalties failed, against the petitioner.

Ratio Decidendi: Excise duty attaches to manufacture, and a manufacturer cannot avoid liability by converting the manufactured goods into a different appearance or form to disguise their true character before clearance.

---