Deteriorated sugar kept in factory storage was not dutiable under the Rule 49 proviso absent loss or destruction.

Duty under Rule 49 of the Central Excise Rules, 1944 arises on removal of excisable goods, and the proviso applies only where goods are lost or destroyed by natural causes or unavoidable accident during handling or storage in approved premises. Sugar that merely deteriorated in quality, while remaining stored in the factory and entered in RG-1, did not satisfy those conditions. Mere inability to market the deteriorated goods, or an allegation of negligence, did not create liability under the proviso, so the duty demand was unsustainable.

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Issues: Whether duty could be demanded under the proviso to Rule 49(1) of the Central Excise Rules, 1944 on sugar that had deteriorated in quality but remained stored in the factory and entered in the RG-1 register.

Analysis: Rule 49 contemplates payment of duty on excisable goods at the time of removal. The proviso permits duty to be charged where the manufacturer fails to satisfy the proper officer that the goods were lost or destroyed by natural causes or unavoidable accident during handling or storage in approved premises. In the present case, the goods were neither lost nor destroyed and continued to remain in the factory. Mere deterioration in quality, without removal from the factory, does not fall within the situations covered by the proviso. The inability to market the deteriorated sugar, or the allegation of negligence, did not create liability under the proviso.

Conclusion: The demand of duty was not sustainable and the issue was decided in favour of the assessee.

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