Marketability and tariff classification must be proved before treating intermediate products as excisable under the Compounded Levy Scheme.

The department failed to prove that the hot-cut and cooled intermediate products arising in manufacture of railway construction materials were marketable and therefore excisable. The finding that they were flat-rolled products lacked evidentiary support, and no clear finding established classification under the tariff sub-headings cited in the notices. In the absence of proof on marketability and correct tariff classification, the Compounded Levy Scheme could not be applied and denial of input credit could not be sustained. The impugned orders were accordingly held unsustainable and set aside in favour of the assessee.

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Issues: Whether the red-hot intermediate products emerging in the course of manufacture of railway construction materials were marketable and excisable so as to attract the Compounded Levy Scheme and justify denial of input credit.

Analysis: The burden of proving excisability lay on the department. There was no reliable evidence to show that the hot-cut and cooled intermediate products were marketable. The finding that the goods were flat-rolled products was unsupported by evidence, and no clear finding was recorded that they fell under the specific tariff sub-headings alleged in the notices. In the absence of proof of marketability and correct tariff classification, the demand and denial of credit could not stand.

Conclusion: The issue was decided in favour of the assessee; the impugned orders were unsustainable and liable to be set aside.

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