Duty on destroyed unfit excisable goods not payable where only prior-permission procedure was breached; penalty reduced.

Where excisable goods had become unfit for consumption or marketing and were irretrievably destroyed, duty could not be demanded merely because prior permission was not obtained from the Central Excise authorities; the lapse was procedural, not substantive, and the duty demand was set aside. For the same reason, a penalty based on the procedure followed was not justified in the original amount; since the breach was technical and not deliberate, the penalty was reduced.

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Issues: (i) whether duty was payable on molasses that had become unfit for marketing and consumption and were destroyed by draining out, despite absence of prior permission from the Central Excise Authorities; (ii) whether penalty imposed for the procedure followed was sustainable.

Issue (i): whether duty was payable on molasses that had become unfit for marketing and consumption and were destroyed by draining out, despite absence of prior permission from the Central Excise Authorities.

Analysis: The second proviso to Rule 49(1) of the Central Excise Rules, 1944 permitted non-demand of duty on goods claimed as unfit for consumption or marketing, subject to conditions imposed by the Collector. The goods were found unfit, their destruction was not in dispute, and the Central Excise authorities had been kept informed of the correspondence with the State Excise authorities. The absence of timely permission from the Central Excise side, or any irregularity in seeking such permission, was treated as a procedural lapse only. Liability to duty could not be fastened merely for breach of procedure when the substantive requirement of destruction of unfit goods was satisfied.

Conclusion: Duty demand on the destroyed molasses was not sustainable and was set aside.

Issue (ii): whether penalty imposed for the procedure followed was sustainable.

Analysis: The authorities were kept informed, and the lapse, if any, was technical and not deliberate. Since the breach was procedural rather than substantive, the penalty required moderation rather than affirmation in the original amount.

Conclusion: The penalty was reduced from Rs. 1000 to Rs. 100.

Final Conclusion: The appeal succeeded on the duty demand and succeeded only in part on penalty, resulting in partial relief to the assessee.

Ratio Decidendi: Where excisable goods have been irretrievably destroyed after becoming unfit for consumption or marketing, duty cannot be demanded merely because a procedural requirement for prior permission was not strictly followed; such breach may justify only a limited penalty.

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