Marketability governs excisability; captive intermediate yarn products were held non-marketable, defeating duty, penalty and rebate adjustment.
Marketability is an essential ingredient of excisability, and the department must prove that intermediate products are capable of being bought and sold in the market. Here, polyester cotton rove twisted yarn and nylon cotton rove twisted yarn were used only for captive consumption, with no evidence of actual marketability; they were therefore held not marketable and not excisable. Once marketability failed, the classification dispute became irrelevant and the duty demand and equal penalty could not survive. The appropriation of sanctioned rebate amounts towards the disputed arrears also failed because it depended on the same unsustainable demand.
Issues: (i) whether the intermediate products, namely polyester cotton rove twisted yarn and nylon cotton rove twisted yarn, were marketable goods; (ii) whether classification of those products could sustain once marketability failed; (iii) whether the demand of duty and equal penalty were sustainable; and (iv) whether appropriation of sanctioned rebate amounts towards the disputed arrears was valid.
Issue (i): whether the intermediate products, namely polyester cotton rove twisted yarn and nylon cotton rove twisted yarn, were marketable goods.
Analysis: Marketability is an essential ingredient of excisability, and the burden lies on the department to prove that the goods are capable of being bought and sold in the market. The record showed that the products were intermediate goods used only for captive consumption, were not ordinarily bought or sold, and there was no supporting evidence from the department to establish actual marketability. Mere reliance on the fact that the appellant was the only manufacturer was insufficient to establish marketability.
Conclusion: The intermediate products were not marketable and the issue is decided in favour of the assessee.
Issue (ii): whether classification of those products could sustain once marketability failed.
Analysis: Classification becomes relevant only if the goods are marketable and therefore excisable. Since the goods were held to be not marketable, they did not answer the description of excisable goods for the disputed period, and the classification dispute lost significance.
Conclusion: The classification demand cannot be sustained and this issue is also in favour of the assessee.
Issue (iii): whether the demand of duty and equal penalty were sustainable.
Analysis: In the absence of marketability, the duty demand failed. The penalty under Section 11AC could not survive where the demand itself was unsustainable, particularly when the dispute arose from assessment and classification and the show cause notice did not propose such penalty.
Conclusion: The duty demand and equal penalty are set aside in favour of the assessee.
Issue (iv): whether appropriation of sanctioned rebate amounts towards the disputed arrears was valid.
Analysis: The appropriation was founded on the confirmed demand. Once the duty demand and penalty were set aside, the basis for adjustment of rebate amounts disappeared.
Conclusion: The appropriation orders cannot stand and this issue is decided in favour of the assessee.
Final Conclusion: The impugned orders were set aside, the duty and penalty confirmations failed, and the rebate appropriation also fell with them, resulting in allowance of all appeals with consequential relief.
Ratio Decidendi: For excise liability to arise, the department must establish both manufacture and marketability, and where marketability is not proved, the goods are not excisable and no duty, classification-based demand, or penalty can survive.
TaxTMI 
AI Drafter ✕
TaxTMI 
