Marketability test defeats excise demand on captive chemical preparations and recycled spent hypo-solutions

Chemical preparations captively used in film processing were not excisable because the department failed to prove factual marketability. Short shelf-life alone was insufficient to show that the goods could be sold in the market, and the laboratory evidence relied on did not establish the same formulations or conditions. Spent hypo-solutions used in the silver-extraction process also failed the marketability test: they were recycled rather than sold, and the product remained the same before and after silver extraction. As the essential requirement of marketability was not established, the onus on the department was not discharged and the duty demand was unsustainable.

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Issues: Whether the chemical preparations used captively in processing cinematographic films and the spent hypo-solutions used in the silver-extraction process were excisable goods liable to central excise duty.

Analysis: The demand failed because the department did not establish that the chemical preparations had the requisite marketability. Their short shelf-life, by itself, was insufficient to prove that they could be marketed under normal conditions, and evidence from other laboratories was not shown to relate to the same formulations or conditions. The same defect affected the case on spent hypo-solutions. The finding that those solutions were not sold but recycled, and that the product remained the same before and after silver extraction, was not displaced by the department's evidence. In such circumstances, the essential requirement of marketability was not proved, and the onus resting on the department was not discharged.

Conclusion: The chemical preparations and spent hypo-solutions were not excisable, and the duty demand was unsustainable.

Ratio Decidendi: An intermediate product captively consumed is not excisable unless the department proves that it is marketable in fact and has sufficient shelf-life or other characteristics enabling sale in the market.

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