Marketability of captive intermediate goods and factory-use exemption under Notification No. 67/95-C.E. upheld on both issues.

Molten coal tar pitch captively consumed at about 300 C was not shown to be marketable in the condition in which it emerged and was used, so duty could not be demanded on that basis. For exemption under Notification No. 67/95-C.E., coal tar pitch used to manufacture dolomite bricks within the factory remained covered because the bricks were treated as refractory materials used in the manufacture chain, and use in an intermediate product did not by itself defeat the exemption. The duty demand and penalty were set aside on both issues.

---

---

Issues: (i) whether molten coal tar pitch captively consumed at about 300 degrees centigrade was marketable so as to attract duty, and (ii) whether coal tar pitch used in the manufacture of dolomite bricks used in the factory was entitled to the benefit of Notification No. 67/95-C.E.

Issue (i): whether molten coal tar pitch captively consumed at about 300 degrees centigrade was marketable so as to attract duty

Analysis: The relevant test was whether the goods, in the very condition in which they emerged and were consumed, were capable of being marketed. The fact that the assessee also cleared solidified pitch in packed form did not establish marketability of molten pitch at a high temperature. Since the Department led no evidence that the molten product, as such, was marketable, duty could not be demanded on that basis.

Conclusion: The marketability requirement was not satisfied and the duty demand on molten coal tar pitch was not sustainable.

Issue (ii): whether coal tar pitch used in the manufacture of dolomite bricks used in the factory was entitled to the benefit of Notification No. 67/95-C.E.

Analysis: Dolomite bricks were treated as refractory materials used in or in relation to the manufacture of the final product. The use of an intermediate product within the factory did not take it outside the scope of the exemption, and the departmental circulars and prior case law supported availability of the exemption where more than one intermediate product arose in the manufacturing chain. On that footing, coal tar pitch used for manufacture of dolomite bricks remained covered by the exemption.

Conclusion: The exemption under Notification No. 67/95-C.E. was available and the contrary finding was unsustainable.

Final Conclusion: The demand and penalty were set aside and the assessee succeeded on both substantive issues.

Ratio Decidendi: Duty cannot be demanded on an intermediate product unless the Department proves that the product, in the condition in which it is removed or consumed, is marketable; and an exemption for inputs used in or in relation to manufacture extends to inputs used in the production of intermediate goods consumed in the manufacture chain.

---