Central excise duty liability stays with the manufacturer at removal, even if another unit later pays; penalties were partly reduced.

Central excise duty remained payable by the manufacturing unit at the time of removal of goods, because the statutory obligation rested on the actual manufacturer and was not discharged merely by another unit later paying duty. The demand against the manufacturing unit was therefore upheld. On penalty, the imposition was sustained but the quantum was reduced, and the separate penalties under Rule 9(2) and Rule 226 were set aside. The result was that the duty liability stood confirmed, while ancillary penal consequences were partially diluted in favour of the assessee.

---

---

Issues: (i) Whether central excise duty remained payable by the unit manufacturing the excisable goods when duty had already been discharged by another unit; and (ii) whether the penalty required reduction and the additional penalties under other rules were liable to be set aside.

Issue (i): Whether central excise duty remained payable by the unit manufacturing the excisable goods when duty had already been discharged by another unit.

Analysis: Section 3 of the Central Excise Act makes duty payable on goods manufactured in India in the manner prescribed by the rules. The relevant rules require the manufacturer to discharge the duty liability before removal of the goods from the place of manufacture. The obligation is cast on the unit in which the goods are manufactured, and removal without payment of duty is not validated merely because another unit subsequently pays duty on the goods.

Conclusion: The demand of duty was rightly confirmed against the manufacturing unit; the issue was decided against the assessee and in favour of Revenue.

Issue (ii): Whether the penalty required reduction and the additional penalties under other rules were liable to be set aside.

Analysis: Although penalty was held imposable, the circumstances justified reduction of the quantum. Once penalty was sustained under Rule 173Q, the separate penalties imposed under Rule 9(2) and Rule 226 were not maintained.

Conclusion: The penalty was reduced to Rs. 5,000 and the penalties under Rule 9(2) and Rule 226 were set aside, partly in favour of the assessee.

Final Conclusion: The duty demand was upheld, while the penalty was substantially reduced and the additional penalties were deleted, resulting in a partly favourable outcome for both sides.

Ratio Decidendi: Central excise duty is payable by the manufacturer at the stage of removal, and subsequent payment by another unit does not discharge the original manufacturer's statutory liability.

---