Marketability test for excise duty: intermediate friction cloth used in belt manufacture was not taxable

An intermediate product is not liable to central excise duty unless it is a manufactured excisable good that is marketable and capable of being bought or sold. Friction cloth/rubberised cloth formed only a stage in the continuous manufacture of transmission belts, was not a finished product, had not been bought or sold, and did not fall within the tariff description of rubberised cotton fabric. The amendments to Rules 9 and 49 created only a deemed removal for excisable goods used in a continuous process; they did not extend duty to an article that was itself non-marketable and not otherwise excisable.

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Issues: Whether friction cloth/rubberised cloth emerging at an intermediate stage in the continuous manufacture of transmission rubber belting, V-shaped belts and conveyor belts is marketable excisable goods exigible to central excise duty after the amendments to Rules 9 and 49 of the Central Excise Rules, 1944.

Analysis: Excise duty is attracted only to goods that are manufactured and are capable of being bought or sold in the market. The court applied the settled test that an article must ordinarily be marketable and economically exchangeable before it can be treated as excisable goods. Friction cloth was found to be only an intermediate stage in a composite and uninterrupted manufacturing process, was not a finished product, was not bought or sold, and did not answer the description of rubberised cotton fabric in the tariff item. The amendments to Rules 9 and 49 created a deemed removal only for excisable goods consumed in a continuous process, but they did not create taxability where the article itself was not excisable or marketable.

Conclusion: Friction cloth was not exigible to excise duty, and the assessee's contention was accepted.

Ratio Decidendi: An intermediate product is not liable to central excise duty unless it is a manufactured excisable good that is marketable and capable of being bought or sold; a deeming provision as to removal cannot impose duty where the article itself does not answer that description.

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