Marketability test and Modvat credit reversal: non-dutiable test cubes cannot retain input credit under Rule 57D(1).

Concrete cubes used for load testing were not excisable goods because tariff coverage alone is insufficient; manufacture and marketability must both exist, and the cubes lacked marketability. On Modvat credit, Rule 57D(1) applies only where inputs become waste, refuse, or a by-product arising in the manufacture of the final product. The cubes were distinct and separately manufactured items used for testing, not by-products of sleeper manufacture, so credit on cement used in making them had to be reversed proportionately. The Revenue's claim for reversal therefore succeeded.

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Issues: (i) whether the concrete cubes were excisable goods liable to central excise duty, and (ii) whether Modvat credit taken on cement used in their manufacture was protected by Rule 57D(1) of the Central Excise Rules.

Issue (i): whether the concrete cubes were excisable goods liable to central excise duty

Analysis: Goods mentioned in the tariff become dutiable only if the twin requirements of manufacture and marketability are satisfied. The cubes were admittedly manufactured from the same concrete mixture used for sleepers, but they were subjected to load testing and had no marketability. In the absence of marketable character, they could not be treated as excisable goods.

Conclusion: The cubes were not excisable goods and no duty was leviable on them.

Issue (ii): whether Modvat credit taken on cement used in their manufacture was protected by Rule 57D(1) of the Central Excise Rules

Analysis: Rule 57D(1) protects credit where inputs become waste, refuse, or by-product arising during manufacture of the final product. The cubes were not by-products arising during manufacture of the sleepers, but distinct and identifiable goods separately manufactured and then used for testing the sleepers. Since no duty was paid on the cubes and their cost was included in the sleeper price, the credit on inputs used for the cubes could not be retained. Proportionate reversal was therefore required.

Conclusion: The respondents were liable to reverse the proportionate Modvat credit and Rule 57D(1) did not apply.

Final Conclusion: The order dropping the proceedings was unsustainable in so far as it denied the Revenue's claim for reversal of credit, and the Revenue succeeded.

Ratio Decidendi: Excisability depends on both manufacture and marketability, and Modvat credit is not allowable on inputs used for non-dutiable, distinct goods that do not arise as waste, refuse, or by-product during manufacture of the final product.

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