Manufacture and marketability under central excise: lead alloy escaped duty, but PVC/PE sheets remained excisable goods.

Adding antimony and other additives to pure lead to obtain lead alloy was held not to amount to manufacture because no new commercially distinct product came into existence, so no excise duty was leviable on the alloy. PVC/PE sheets used in battery separator manufacture were treated as marketable excisable goods at the intermediate stage because marketability depends on capability of sale, not actual sale or special packing, and their identity as sheets remained intact after cutting. Modvat credit on eligible inputs had to be considered on proof of duty-paid documents, and the penal consequence was set aside.

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Issues: (i) Whether the process of adding antimony metal and other additives to pure lead to obtain lead alloy amounted to manufacture and rendered the product liable to central excise duty. (ii) Whether PVC/PE sheets emerged as marketable excisable goods at the intermediate stage in the manufacture of battery separators. (iii) Whether penalty was imposable and whether Modvat credit reversal had to be given effect while determining duty.

Issue (i): Whether the process of adding antimony metal and other additives to pure lead to obtain lead alloy amounted to manufacture and rendered the product liable to central excise duty.

Analysis: The process did not bring into existence any new commodity with a distinct commercial identity. The relevant tariff note did not deem the process to be manufacture, and the principle accepted in prior decisions was that alloying lead with antimony for increasing hardness did not by itself amount to manufacture. The classification note in Section XV was also treated as consistent with the view that an alloy is regarded as composed of the metal by reference to which it is classified.

Conclusion: The process of making lead alloy was not manufacture and no excise duty was leviable on the lead alloy.

Issue (ii): Whether PVC/PE sheets emerged as marketable excisable goods at the intermediate stage in the manufacture of battery separators.

Analysis: The sheets retained their identity as sheets even after being cut to size. Marketability was held to mean capability of sale, not actual sale or packing on drums. The fact that the sheets were sent to job workers and were not wound or packed in any particular manner did not destroy their character as marketable goods. The earlier departmental orders were not treated as controlling in view of the later authoritative test of marketability.

Conclusion: PVC/PE sheets emerged as excisable goods and were chargeable to central excise duty.

Issue (iii): Whether penalty was imposable and whether Modvat credit reversal had to be given effect while determining duty.

Analysis: In the circumstances of the case, the duty element on the sheets had to take account of the assessee's entitlement to Modvat credit on eligible inputs upon production of supporting duty-paying documents. The record did not justify penal consequence.

Conclusion: Modvat credit was directed to be considered subject to proof, and penalty was set aside.

Final Conclusion: The appeal succeeded on the lead alloy issue and on penalty, but failed on the excisability of PVC/PE sheets, resulting in a partial relief to the assessee.

Ratio Decidendi: A process amounts to manufacture only when it results in a new commercially distinct product, and marketability is satisfied if the article is capable of sale in the market even without actual sale or special packing.

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