Marketability of intermediate excisable goods must be proved by Revenue before duty can be sustained

Excise duty on an intermediate product arises only if the item is shown to be goods, meaning it must be marketable or capable of being marketed. On the facts, the Revenue failed to produce evidence that the flavoured tobacco generated during manufacture of pan masala was actually sold or capable of sale in the market. The Tribunal held that the burden to prove marketability lay on the Revenue, and the departmental assertion that non-sale alone did not establish non-marketability was insufficient without proof. As marketability was not established, excisability was not made out and the duty demand could not be sustained.

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Issues: Whether flavoured tobacco arising during manufacture of pan masala and used captively in the factory was marketable and therefore liable to central excise duty.

Analysis: The Tribunal noted that excise duty on an intermediate product depends on its being goods, which in turn requires marketability or capability of being marketed. The record contained no evidence from the Revenue that the flavoured tobacco was actually sold or was capable of being sold in the market. The departmental contention that non-sale did not by itself show non-marketability was not supported by proof sufficient to discharge the burden that lay on the Revenue.

Conclusion: The intermediate flavoured tobacco was not proved to be marketable, and the duty demand could not be sustained. The appeals filed by the Revenue therefore failed.

Ratio Decidendi: In a demand for excise duty on an intermediate product, the burden lies on the Revenue to establish that the product is marketable or capable of being marketed; absent such proof, excisability is not made out.

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