Factory-use exemption turns on actual in-house use and removal, not mere sale invoicing for financing purposes.

Excise duty is attracted on manufacture, but under the notification the decisive conditions were that the goods be manufactured in the factory and intended for use there. Moulds made in the assessee's factory, retained in that factory and used there remained eligible for exemption, even though sale invoices were raised in favour of a finance company for funding purposes. Mere invoicing without actual removal did not alter the excisable character of the goods or defeat the exemption. As the duty demand rested only on the financing arrangement and not on any breach of the notification condition, the demand and the related penalty were unsustainable.

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Issues: Whether moulds manufactured in the assessee's factory, sold to a finance company only for raising funds but retained and used in the same factory, were entitled to exemption under Notification No. 220/86-C.E. dated 02-04-1986, and whether duty, penalty and the allegation of suppression could survive on the footing of sale invoicing alone.

Analysis: Excise duty is attracted on manufacture, while collection may be postponed till actual removal. The decisive condition under the notification is that the goods must be manufactured in a factory and intended for use in that factory. On the admitted facts, the moulds were not removed from the factory and were intended for use there. Mere raising of sale invoices in favour of the finance company did not alter the character of the goods for excise purposes or justify denial of the exemption. Since the duty demand rested only on the sale arrangement and not on any actual removal or non-fulfilment of the notification condition, the demand was unsustainable. The foundation for penalty also failed.

Conclusion: The exemption was available to the assessee, and the demand of duty and penalty were not sustainable.

Final Conclusion: The impugned order was set aside and the appeal succeeded because the goods remained eligible for exemption despite the financing arrangement, as excise liability did not arise merely from sale without removal.

Ratio Decidendi: For exemption under a notification conditioned on manufacture in a factory and intended use in that factory, the decisive test is actual manufacture and intended in-factory use, and not the transfer of title or raising of sale invoices where the goods are not removed from the factory.

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