Intra-factory transfer of goods is not removal for excise duty where statutory rules do not treat internal movement as taxable removal.

Excise duty was held not payable on molasses moved from a pacca tank to a kachcha pit within the factory, because Rules 9 and 49 did not treat intra-factory movement as removal attracting duty and departmental instructions could not override the statutory scheme. The pending remission application and evidence of deterioration before the shift also weighed against the demand, since duty liability had not finally crystallised while that claim remained undecided. The demand and confirming order were therefore unsustainable, and the assessee succeeded with consequential relief.

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Issues: (i) whether excise duty was payable on molasses shifted from a pacca tank to a kachcha pit inside the factory premises without prior approval of the Central Excise authorities; and (ii) whether the pending application for remission of duty and the alleged deterioration of the molasses affected the validity of the demand.

Issue (i): whether excise duty was payable on molasses shifted from a pacca tank to a kachcha pit inside the factory premises without prior approval of the Central Excise authorities.

Analysis: A conjoint reading of Rule 9 and Rule 49 showed that duty could not be demanded so long as the goods remained within the factory. Since the kachcha pit was inside the factory, mere transfer from one storage point to another within the premises did not amount to removal attracting duty. The departmental instruction prohibiting such storage could not override the statutory scheme of the rules.

Conclusion: The demand of duty on the intra-factory transfer was not sustainable and is decided in favour of the assessee.

Issue (ii): whether the pending application for remission of duty and the alleged deterioration of the molasses affected the validity of the demand.

Analysis: The material on record indicated that the molasses had deteriorated after prolonged storage and before being shifted to the kachcha pit. The remission application remained pending, and the lower authorities did not deal with this aspect. In these circumstances, it was not proper to proceed as if duty liability had finally arisen in law.

Conclusion: The pending remission claim and prior deterioration negatived the demand and the assessee succeeds on this issue as well.

Final Conclusion: The impugned demand and the order confirming it were unsustainable because the goods remained within the factory and the remission claim had not been decided, so the appeal was allowed with consequential relief.

Ratio Decidendi: Excise duty cannot be demanded on a transfer of goods within the factory premises where the statutory rules do not treat such movement as removal, and a demand is also unsustainable where the remission claim arising from deterioration has not been finally disposed of.

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