1987 (7) TMI 97 - HC - Central Excise

Court rules in favor of company in excise duty dispute over varnish classification, emphasizing non-commercial viability.

The court ruled in favor of the petitioner, a company manufacturing electrical wires, in a dispute with the Excise Department over the classification of ... Intermediate product having no commercial use or marketability - Not liable to duty Issues:1. Classification of varnish for excise duty under Tariff Item 14(II)(i) of the Central Excise Tariff.2. Dispute over the nature of the product at an intermediate stage in the manufacturing process.3. Interpretation of whether the product qualifies as polyester resin and is marketable.4. Legal challenge against the Excise Department's demand for duty on the product at the intermediate stage.Analysis:The judgment revolves around a dispute concerning the classification of varnish for excise duty purposes under Tariff Item 14(II)(i) of the Central Excise Tariff. The petitioner, a company manufacturing electrical wires, uses a specific varnish in its production process. The Excise Department raised concerns regarding the manufacturing process of the varnish and sampled the product at an intermediate stage. The Department contended that the product constituted polyester resin, subject to duty. The petitioner argued that the product was varnish, not resin, and was not marketable in its current state. The court analyzed the manufacturing process, expert opinions, and industry practices to determine the nature of the product.The petitioner maintained that the varnish was an integrated and continuous process, distinct from the production of resin. They emphasized that the product at the intermediate stage was not marketable as resin and could only be used for manufacturing varnish. Expert affidavits supported the petitioner's stance, asserting that the product was not a commercially viable resin and lacked market demand. The court considered the expert opinions and industry experience to ascertain the nature of the product and its suitability for market trade.The court highlighted a previous case involving a similar dispute over product classification, where the Department's interpretation was deemed illegal. Drawing parallels, the court applied the same reasoning to the present case, emphasizing the lack of marketability of the product at the intermediate stage. The judgment underscored the importance of independent assessment by the Department and rejected the imposition of duty on a non-marketable product. Ultimately, the court ruled in favor of the petitioner, directing the cancellation of bank guarantees and awarding costs to the petitioner. The judgment clarified the distinction between varnish and resin, emphasizing marketability and commercial use as crucial factors in determining excise duty classification.