Factory-based excisability and refund limitation: duty on tugs failed, and refund was governed by general limitation law.

Item 68 applied only to goods manufactured in a factory, so tugs launched before completion and remaining outside the factory premises were not excisable on these facts; manufacture was completed outside the factory, and duty was not chargeable under Item 68. Where duty had nevertheless been collected on goods later found non-excisable at the material time, the refund claim was governed by the general law of limitation rather than Rule 11 of the Central Excise Rules, 1944. The later restriction in Section 11B did not apply retrospectively, and a claim filed within the Limitation Act period was maintainable. The duty collected on the tugs was therefore refundable.

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Issues: (i) Whether the two tugs, launched before completion and kept outside the factory premises, were excisable and chargeable to duty under Item 68 of the Central Excise Tariff. (ii) Whether the refund claim for duty paid on the tugs was barred by Rule 11 of the Central Excise Rules, 1944 or was governed by the general law of limitation.

Issue (i): Whether the two tugs, launched before completion and kept outside the factory premises, were excisable and chargeable to duty under Item 68 of the Central Excise Tariff.

Analysis: Item 68 applied only to goods manufactured in a factory. The tugs had been launched before the critical date, were not fully manufactured or ready for delivery, and after launching remained at the Bombay Port Trust jetty outside the factory premises. On those facts, completion of manufacture took place outside the factory and the essential condition of manufacture in a factory was not satisfied.

Conclusion: The tugs were not chargeable to duty under Item 68.

Issue (ii): Whether the refund claim for duty paid on the tugs was barred by Rule 11 of the Central Excise Rules, 1944 or was governed by the general law of limitation.

Analysis: The duty had been collected on goods which were found not to be excisable at the material time. In such a situation, the refund claim was not governed by Rule 11 as a claim under the excise refund machinery, but by the general law of limitation. The later statutory restriction introduced by Section 11B did not operate retrospectively. The claim having been made within the period recognised under the Limitation Act, 1963, the bar of Rule 11 did not apply.

Conclusion: The refund claim was not barred by Rule 11 and was maintainable under the general law of limitation.

Final Conclusion: The duty collected on the two tugs was refundable, and the assessee was entitled to relief against the orders rejecting the refund as time-barred.

Ratio Decidendi: Where duty is collected on goods later found to be non-excisable at the material time, refund is not confined to Rule 11 of the Central Excise Rules, 1944 and is governed by the general law of limitation; additionally, Item 68 applied only to goods manufactured in a factory.

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