Manufacture under Chapter 38 does not by itself attract excise duty unless the product is also shown to be marketable.

Slurry produced by admixing pesticides, insecticides, chemicals and water was held to fall within the deeming fiction of manufacture under Chapter Note 2 to Chapter 38, because the addition of chemicals and carriers created a product different from the inputs. Excise duty nevertheless failed because marketability was not proved: no material showed commercial acceptance, distinct identity in trade, or sale by the assessee or other manufacturers. Mere emergence of a new product was insufficient without proof that it was marketable. As the department did not establish marketability, the demand and penalty could not survive.

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Issues: (i) whether the slurry produced by admixing pesticides, insecticides, chemicals and water amounted to manufacture under Chapter Note 2 to Chapter 38 of the Central Excise Tariff Act, 1985; (ii) whether the resultant slurry was shown to be marketable so as to attract excise duty.

Issue (i): whether the slurry produced by admixing pesticides, insecticides, chemicals and water amounted to manufacture under Chapter Note 2 to Chapter 38 of the Central Excise Tariff Act, 1985.

Analysis: The slurry was produced by combining duty-paid insecticides or pesticides with other chemicals and inert carriers such as water for use on seeds. On those facts, the resultant product fell within the deeming fiction of manufacture under Chapter Note 2 to Chapter 38, because the addition of chemicals and carriers brought into existence a product different from the inputs in the form contemplated by the tariff note.

Conclusion: This issue was decided against the assessee and in favour of the department.

Issue (ii): whether the resultant slurry was shown to be marketable so as to attract excise duty.

Analysis: Marketability was treated as an essential condition for dutiability. No material was produced to show that the slurry had commercial acceptance or a distinct identity in the market, either by sale by the assessee or by other manufacturers. Mere emergence of a new product by admixture was held insufficient without proof of marketability.

Conclusion: This issue was decided in favour of the assessee and against the department.

Final Conclusion: Though the slurry was held to amount to manufacture, the demand failed because the department did not establish marketability, and the penalty also could not survive.

Ratio Decidendi: For excise duty, the emergence of a product by manufacture is not enough by itself; the department must also establish that the product has commercial identity and is marketable in the trade.

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