Marketability and bona fide belief defeat excise demand on fermentation gas and contractor-made tanks

Carbon dioxide arising during beer fermentation was treated as an intermediate product and not dutiable because the Revenue failed to prove marketability; the gas was not removed in marketable form during the relevant period. The extended limitation period was unsustainable because the assessee's non-payment was based on a bona fide belief supported by departmental tariff advice. For fabricated SS/MS tanks made by an independent contractor, duty could not be fastened on the assessee where there was no evidence of financial flowback, control over the contractor, or dummy manufacture, so the job worker was the manufacturer for excise purposes.

---

---

Issues: (i) Whether carbon dioxide gas emerging during the fermentation stage of beer manufacture was excisable goods liable to duty; (ii) Whether the demand was barred by limitation in view of bona fide belief based on the departmental tariff advice; (iii) Whether duty on the fabricated SS/MS tanks could be fastened on the assessee when fabrication was undertaken by an independent contractor.

Issue (i): Whether carbon dioxide gas emerging during the fermentation stage of beer manufacture was excisable goods liable to duty.

Analysis: The gas emerged only as an intermediate and technologically necessary product during fermentation and was not removed in any marketable form. The assessee showed that a separate plant had to be installed later to extract and make the gas marketable, which supported the position that during the relevant period the product was not in a marketable stage. The burden to prove marketability lay on the Revenue, and no material was produced to establish that the gas was capable of being marketed as such.

Conclusion: The carbon dioxide gas was not liable to duty, as marketability was not established.

Issue (ii): Whether the demand was barred by limitation in view of bona fide belief based on the departmental tariff advice.

Analysis: The assessee relied on the departmental tariff advice indicating that carbon dioxide arising in beer fermentation was not dutiable. In the circumstances, the assessee's belief that no duty was payable was held to be bona fide. Since the Revenue had not shown a basis to displace that belief, invocation of the extended period was unsustainable.

Conclusion: The demand was barred by limitation.

Issue (iii): Whether duty on the fabricated SS/MS tanks could be fastened on the assessee when fabrication was undertaken by an independent contractor.

Analysis: The tanks were fabricated by a contractor under contract. The assessee had supplied raw materials and accommodation, but there was no evidence of financial flowback, control over the contractor's manufacturing process, or that the contractor was a dummy. On the settled principle that the job worker is the manufacturer where fabrication is carried out independently on principal-to-principal basis, duty could not be demanded from the assessee merely because it supplied materials or facilities.

Conclusion: Duty on the tanks could not be fastened on the assessee.

Final Conclusion: The duty demands and penalty could not be sustained either on merits or on limitation, and the appeal succeeded in full.

Ratio Decidendi: For an intermediate product to be dutiable, the Revenue must prove that it is marketable, and where fabrication is carried out by an independent contractor without the assessee controlling the manufacturing process, the contractor is the manufacturer for excise purposes.

---