Marketability is essential for excise duty; contaminated, unsaleable cigarettes were not dutiable, and penalty failed without wilful evasion.

Cigarettes contaminated by oil and rendered unfit for consumption were held not to remain excisable goods because marketability is an essential attribute for levy of duty. On that basis, the destroyed cigarettes were not liable to excise duty. Penalty was also unsustainable because the record did not show deliberate evasion or wilful contravention of the excise rules; mere suspicion or procedural lapse was insufficient. The assessee therefore obtained complete relief and the penalty order was set aside.

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Issues: (i) Whether the destroyed cigarettes, being oily and contaminated, remained excisable goods liable to excise duty; (ii) whether the facts justified imposition of penalty for alleged contravention of the excise rules.

Issue (i): Whether the destroyed cigarettes, being oily and contaminated, remained excisable goods liable to excise duty.

Analysis: Cigarettes which are so contaminated by oil that they are unfit for human consumption and do not ordinarily come to the market to be bought and sold do not answer the ordinary meaning of goods for excise purposes. Marketability is an essential attribute for levy of duty on the article as cigarettes in the commercial sense. Once the cigarettes had become unsmokable and unmarketable by contamination, they could not be treated as dutiable cigarettes merely because they retained the physical shape of cigarettes.

Conclusion: The issue was decided in favour of the assessee. The oily cigarettes destroyed by the company were not liable to excise duty.

Issue (ii): Whether the facts justified imposition of penalty for alleged contravention of the excise rules.

Analysis: Penalty could not be sustained in the absence of evidence of deliberate evasion or wilful contravention. The records did not establish that the cigarettes were removed or destroyed in a manner showing intent to evade duty, and the circumstances did not justify attributing a conscious violation warranting a substantial monetary penalty. Mere suspicion or procedural lapse was insufficient to impose penalty of the magnitude levied.

Conclusion: The issue was decided in favour of the assessee. No case for penalty was made out under the excise rules.

Final Conclusion: The appeal succeeded and the impugned penalty order was set aside, with the assessee obtaining complete relief.

Ratio Decidendi: For excise purposes, an article must retain marketability as goods, and penalty cannot be imposed absent proof of deliberate evasion or wilful contravention.

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