Marketability test for captive intermediate goods defeated excise duty where stems in lamp manufacture were not shown to be saleable.

An intermediate product used in a continuous captive manufacturing process is not dutiable unless the revenue proves that it is marketable or capable of being marketed. On the facts discussed, the stems produced in the manufacture of GLS lamps were transferred mechanically for further use, were not stored, and were supported by evidence showing no actual marketability or sale in the market. Mere tariff classification or use in later manufacture was held insufficient to fasten excise duty. The duty demand and consequential penalties could not be sustained, and the impugned order was set aside.

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Issues: Whether the stems arising in the continuous manufacture of GLS lamps were marketable excisable goods liable to duty under the Central Excise Tariff Act, and whether the demand and consequential penalties could be sustained.

Analysis: Duty under central excise is attracted only when the article is produced or manufactured and also satisfies the test of marketability. Captive consumption by itself does not establish dutiability. The evidence on record showed that the stems were generated in an integrated and continuous manufacturing process, were not stored, and were transferred mechanically for further use. Affidavits from technical personnel and dealers supported the case that the stems were not bought and sold in the market. The record did not contain independent evidence from the department to establish marketability. In such circumstances, the mere fact that the stems fell within tariff classification or were used in the manufacture of bulbs was not enough to fasten duty liability. The reasoning also followed the view that, on similar facts, show cause notices were without jurisdiction where the intermediate product was not shown to be marketable.

Conclusion: The stems were not proved to be marketable excisable goods, and the demand of duty could not stand.

Final Conclusion: The impugned order was set aside and the appeals were allowed.

Ratio Decidendi: An intermediate product used captively in a continuous manufacturing process is not dutiable unless the revenue proves that it is marketable or capable of being marketed.

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