Marketable goods test defeats excise duty on site-fabricated steel structurals; liability cannot attach to non-manufacturing contractors.

Fabrication and erection of steel structurals at site was held not to amount to manufacture because the processes did not produce a new, distinct and marketable commodity with separate identity, use and character; the structures were treated as part of an immovable structure and not excisable goods. Duty also could not be fastened on the appellants because the fabrication was admittedly carried out by independent sub-contractors, and liability, if any, lay on the actual manufacturer rather than on a coordinating contractor. On that reasoning, the demand and penalty were unsustainable.

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Issues: (i) Whether fabrication and erection of steel structurals at the project site amounted to manufacture of excisable goods; (ii) whether duty could be fastened on the appellants when the fabrication work was admittedly carried out by independent sub-contractors.

Issue (i): Whether fabrication and erection of steel structurals at the project site amounted to manufacture of excisable goods.

Analysis: The structural components were subject to cutting, drilling, welding, riveting and fastening, but the deciding test was whether those processes brought into existence a new and distinct commodity known in the market with a separate identity, use and character. The reasoning applied the settled principle that mere change or assembly does not by itself amount to manufacture unless transformation into a distinct marketable product occurs. On the facts, the structures created at site were treated as part of an immovable structure and not as separately marketable goods exigible to excise duty.

Conclusion: The fabrication and erection of the steel structurals at site did not amount to manufacture of excisable goods, and this issue was decided in favour of the assessee.

Issue (ii): Whether duty could be fastened on the appellants when the fabrication work was admittedly carried out by independent sub-contractors.

Analysis: The record showed that the fabrication was done by independent sub-contractors on specifications and drawings, while the appellants only coordinated the civil contract and retained a margin. Since the adjudication itself proceeded on the basis that the structurals were fabricated by the sub-contractors, liability, if any, would lie on the actual manufacturer and not on the appellants. The absence of a departmental challenge to the finding regarding the actual fabricators reinforced that the duty demand against the appellants was unsustainable.

Conclusion: Duty could not be validly demanded from the appellants on this footing, and this issue was decided in favour of the assessee.

Final Conclusion: The demand and penalty were unsustainable, and the appeal succeeded with consequential relief.

Ratio Decidendi: For excise liability to arise, the department must establish that the process resulted in manufacture of a distinct marketable product, and where fabrication is admittedly undertaken by independent sub-contractors, duty cannot be fastened on a person who is not the actual manufacturer.

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