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Issues: (i) whether the intermediate product was excisable and liable to duty; (ii) whether the intermediate product was entitled to exemption under Notification No. 217/86.
Issue (i): whether the intermediate product was excisable and liable to duty.
Analysis: The intermediate product was described as a transient stage product in the form of black lumps, having a very short shelf life, without a distinct name, not marketed, not marketable, and used captively in the manufacture of the final goods. In the absence of marketability, duty could not be sustained on such a product.
Conclusion: The intermediate product was not excisable and the duty demand was not sustainable.
Issue (ii): whether the intermediate product was entitled to exemption under Notification No. 217/86.
Analysis: Even assuming the intermediate product was otherwise dutiable, the goods were used captively in further manufacture and fell within the scope of the exemption notification relied upon by the assessee.
Conclusion: The intermediate product was entitled to the benefit of Notification No. 217/86.
Final Conclusion: The impugned appellate order was set aside, the original order was restored, and the assessee succeeded.
Ratio Decidendi: An intermediate product that is not marketable and is used captively in manufacture is not excisable, and in any event may qualify for exemption under the relevant captive-consumption notification.
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