1998 (8) TMI 599 - HC - Central Excise

Summary

Issues:
1. Liability of excise duty on burnt molasses due to auto-combustion.
2. Application of Rule 49(1) of the Central Excise Rules, 1944.
3. Entitlement to clearance of burnt molasses without duty payment.
4. Negligence of the petitioner leading to auto-combustion.

Analysis:
Issue 1: The petitioner, a sugar manufacturer, faced the question of excise duty liability on burnt molasses resulting from auto-combustion. The molasses stored decomposed into a carbonised solid state, becoming unfit for distillation and consumption. The burnt molasses, also known as 'Black Solid Mass,' was considered waste. The petitioner argued that since the molasses were destroyed and unsellable, no excise duty should apply.

Issue 2: Rule 49(1) of the Central Excise Rules, 1944 was crucial in determining duty liability. The rule specified that duty is payable upon clearance of goods and allowed for duty exemption on goods lost or destroyed by natural causes or unavoidable accidents during storage. The petitioner sought to benefit from this provision to avoid duty payment on the burnt molasses.

Issue 3: The petitioner applied to the Excise Authorities to clear the burnt molasses without duty payment, citing that only a portion of the molasses remained after destruction. However, duty was inadvertently paid on the cleared portion. The court had to decide whether the petitioner was entitled to clearance without duty payment for the destroyed molasses.

Issue 4: The Department alleged negligence on the petitioner's part for the auto-combustion in the molasses storage tanks. The authorities contended that the petitioner failed to take proper precautions, leading to the combustion. This negligence was used to argue against the petitioner's claim for duty exemption on the destroyed molasses.

In the judgment, it was held that excise duty is leviable only upon clearance of goods. The loss of molasses due to internal combustion, as in this case, did not attract duty liability under Rule 49(1). The court found the Department's argument regarding negligence unfounded, emphasizing that natural combustion in some tanks did not imply the same reaction in all tanks. Consequently, the petitioner was not liable for duty on the destroyed molasses. The court set aside the previous orders, allowing the writ petition but denying a duty refund for the cleared portion of molasses.