Marketability test for excise and absence of wilful suppression defeated duty demand on waste liquor by-products

Manufacturing residue is liable to Central Excise only if it constitutes marketable goods in commercial parlance; waste liquor I and waste liquor II arising from caprolactum manufacture were held not to be excisable because they had only stray sales and were not goods for duty. The extended limitation period also could not be invoked because the record showed prior disclosure of their generation, combustion and use, so wilful suppression or misstatement was not established. The duty demand and penalty were therefore set aside.

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Issues: (i) whether waste liquor I and waste liquor II obtained as by-products were excisable and dutiable; (ii) whether the demand was barred by limitation.

Issue (i): whether waste liquor I and waste liquor II obtained as by-products were excisable and dutiable.

Analysis: The goods arose in the course of manufacture of caprolactum and had only stray sales. Applying the settled test that excise is attracted only when the article is goods capable of being bought and sold as a marketable commodity, the Tribunal relied on the principle that refuse, rubbish, ashes and impurities do not become excisable merely because they may occasionally be sold or because they are classifiable under the tariff.

Conclusion: Waste liquor I and waste liquor II were not goods for levy of Central Excise duty and were not dutiable.

Issue (ii): whether the demand was barred by limitation.

Analysis: The record showed prior disclosure to the department about generation, combustion and use of the waste liquors and the resultant steam. On those facts, the ingredients of wilful suppression or misstatement were not established, so the extended period could not be invoked.

Conclusion: The demand was hit by limitation and was not sustainable.

Final Conclusion: The impugned duty demand and penalty were set aside and the appeal succeeded on the merits and on limitation.

Ratio Decidendi: A manufacturing residue is liable to excise only if it is marketable goods in commercial parlance, and the extended limitation period cannot be invoked in the absence of wilful suppression or misstatement of material facts.

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