Concessional duty on furnace oil used in manufacture upheld; Rule 9(2) demand fails without Rule 9(1) contravention.

A demand under Rule 9(2) of the Central Excise Rules, 1944 cannot stand unless a contravention of Rule 9(1), such as removal of excisable goods without duty, is established; here, no finding of clandestine removal was recorded, so the demand failed. Furnace oil used to generate steam and electricity during the plant's annual shut-down, including maintenance and overhauling, was treated as integrally connected with manufacture and therefore as use in the manufacture of the final product. On that basis, the oil remained eligible for concessional duty, and the Revenue's reference was rejected.

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Issues: Whether furnace oil used to generate steam and electricity during the plant's annual shut-down period was entitled to concessional rate of duty, and whether a demand under Rule 9(2) could stand in the absence of any established contravention of Rule 9(1).

Analysis: The demand was founded on Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the Central Excises and Salt Act, 1944, but Rule 9(2) presupposes a contravention of Rule 9(1), namely removal of excisable goods without payment of duty. No finding of clandestine removal was recorded. On merits, the furnace oil was used to generate steam and electricity for the plant, and maintenance and overhauling during shut-down formed an integral part of the manufacturing process. The use was therefore connected with the manufacture of the final product in the legal sense adopted in the cited authorities.

Conclusion: The demand could not be sustained under Rule 9(2), and the furnace oil used for steam and electricity generation during shut-down remained entitled to concessional duty.

Final Conclusion: The Revenue's reference failed because the duty demand was legally unsustainable and the disputed use of furnace oil was treated as part of the manufacturing process for concessional duty purposes.

Ratio Decidendi: A demand under Rule 9(2) of the Central Excise Rules, 1944 cannot be sustained unless contravention of Rule 9(1) is established, and goods used for an activity integrally connected with manufacture are treated as used in the manufacture of the final product.

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