Excise duty after removal and labelling as manufacture: Rule 9(2) and marketability requirements upheld.

Rule 9(2) was treated as permitting excise duty to be demanded even after excisable goods had been removed from the factory without payment of duty, so removal on gate passes did not bar a later demand. In relation to patent and proprietary medicines, labelling required for marketability under the Drugs Act, 1940 was held to be an incidental and ancillary step in completing manufacture under section 2(f), and unlabelled medicines were not treated as fully manufactured for excise purposes. The demand was therefore upheld and the assessee's challenge failed.

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Issues: (i) whether excise duty could be demanded under Rule 9(2) after the goods had been removed from the factory on gate passes, and (ii) whether labelling of patent and proprietary medicines amounted to manufacture under section 2(f).

Issue (i): whether excise duty could be demanded under Rule 9(2) after the goods had been removed from the factory on gate passes.

Analysis: Rule 9(2) was treated as the governing provision, distinct from Rule 9A. Where excisable goods are removed from the place of manufacture or premises appurtenant thereto without payment of duty, the rule permits levy even after removal. The subsequent removal of the goods on gate passes therefore did not bar a later demand of duty once the goods were found to be excisable.

Conclusion: The demand of excise duty after removal was valid and this issue was decided against the assessee.

Issue (ii): whether labelling of patent and proprietary medicines amounted to manufacture under section 2(f).

Analysis: For patent and proprietary medicines, marketable character was held to depend on compliance with the Drugs Act, 1940, including the labelling requirements. The Court held that manufacture of such medicines was not complete until labelling was done, and that labelling was an incidental or ancillary process to completion of manufacture. Unlabelled medicines were not treated as patent and proprietary medicines for excise purposes.

Conclusion: Labelling was held to be manufacture for excise purposes and this issue was decided against the assessee.

Final Conclusion: The impugned demand was upheld and the application failed in entirety.

Ratio Decidendi: Under Rule 9(2), excise duty may be demanded even after removal of excisable goods without payment of duty, and in the case of patent and proprietary medicines, labelling required for marketability forms part of manufacture under section 2(f).

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