Determination of taxable event for charge of duty :
Before getting into the discussion it will be relevant to note the differences between the exempted goods and the goods which are out side the purview of the Central Excise. Exempted goods are basically chargeable to duty but with an intention of giving relaxation, they are exempted from payment of duty. On the other hand the goods out side the purview of levy are either goods which are not included in the tariff at all.
The taxable event for the charge of excise duty is the manufacture of goods, as per section 3 of the Central Excise Act. However, the collection of duty is postponed to the stage of removal of goods as per Rules 4 of the Central Excise Rules 2002. The question which arises for consideration is whether goods which are manufactured at the period in time when they were either not chargeable to duty or were exempted from duty could be charged to duty if, subsequent to manufacture but before removal such goods become chargeable to duty, either due to their inclusion in the Tariff or due to withdrawal of the exemption from duty.
In its decision in Wallace Flour Mills Vs. C.C.EX. (1989) (44) ELT-598, the Supreme Court held that the taxable event for the liability to duty was manufacture of goods but the duty could be levied and collected at any later stage for administrative convenience. Merely because the payment of duty under Rules is postponed to the stage of removal it could not be contended that the removal of goods has become the taxable event for the levy of duty. The Supreme Court considered the several earlier High Court judgements on the point, especially, the Madhya Pradesh High Court‘s decision in Union of India Vs. Kirloskar Brothers (1978) (2) ELT-690, the Bombay High Court‘s decision in Synthetics & Chemicals Ltd. Vs. S.C. Coutinho (1981) (8) ELT-414 and the Madras High Court‘s decision in Sundaram, Textiles Ltd. Vs. Asstt. Collector C.EX. (1983) (13) ELT-909.
Consequently, the excisable goods which were chargeable to duty under the Tariff at the time of manufacture but were exempted under an exemption notification will be liable to payment of duty if, post manufacture and prior to removal, such exemption from duty is withdrawn. However, in cases where the goods were outside the purview of the Tariff at the time of manufacture such goods would not be chargeable to duty even though, subsequent to manufacture but prior to removal, such goods were brought within the purview of the Ta riff or were charged to a duty of excise by means of an amendment to the Tariff. In other words, since the goods were not excisable goods as per the provisions of section 2(d) at the time of manufacture, they would not be liable to duty even though they were brought within the purview of the aforesaid section prior to removal from the factory.
This was the implication of the decision of the Supreme Court in Vazir Sultan Tobacco Co.Ltd vs CCE 1996 (83) ELT 3. In this case a special excise duty of 5% of the amount of excise duty was introduced on manufacture of cigarettes. The assessee contended that the special duty is not payable as the goods were manufactured prior to introduction of new levy. The Supreme Court also held that the levy can be imposed only on goods manufactured after the date of levy.
To summarise, the current position in law is that exempted goods will be chargeable to duty at the time of removal if, subsequent to manufacture but before removal, the exemption from duty is withdrawn. However, goods that are not covered within the ambit of the Central Excise Tariff will not be chargeable to duty even though subsequent to manufacture but before removal such goods are bought within the purview of the tariff or are made chargeable to a specified rate of duty under the Tariff.