Marketability of intermediate goods and absence of suppression defeat excise duty, extended limitation, and penalty.

In excise proceedings concerning an intermediate product arising during manufacture of an exempt final product, marketability remains a necessary condition for excisability, and the Revenue bears the burden of proving that the material is stable, known in the market, and capable of being bought and sold. On the facts stated, that proof was absent, so duty could not be sustained on merits. The text also states that extended limitation and penalty require deliberate suppression or intent to evade duty; where the assessee acted under a bona fide belief that no duty was payable and no mens rea was established, invocation of the extended period and penalty was not justified.

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Issues: (i) Whether the intermediate product arising during manufacture of the exempt final product was marketable and therefore excisable. (ii) Whether the extended period of limitation and penalty were sustainable in the absence of deliberate suppression or intent to evade duty.

Issue (i): Whether the intermediate product arising during manufacture of the exempt final product was marketable and therefore excisable.

Analysis: The final product was exempt, and the intermediate material came into existence only during the manufacturing process. There was no evidence that the intermediate product was stable, separately known in the market, bought and sold, or otherwise capable of being marketed as goods. The Chemical Examiner also did not affirm its stability. In excise law, marketability is a necessary condition for treating an intermediate product as excisable goods, and the burden lies on the Revenue to prove that requirement.

Conclusion: The intermediate product was not proved to be marketable goods, and duty could not be sustained against the assessee on merits.

Issue (ii): Whether the extended period of limitation and penalty were sustainable in the absence of deliberate suppression or intent to evade duty.

Analysis: Since the main product was exempt and the intermediate material arose in the course of a continuous manufacturing process, the assessee had a bona fide belief that no duty was payable. The department did not establish deliberate suppression of facts or a conscious intention to evade duty. On the facts, mere non-payment of duty without proof of mens rea was insufficient to justify invocation of the extended period or imposition of penalty.

Conclusion: The extended period and penalty were not sustainable, and the findings were in favour of the assessee.

Final Conclusion: The appeal succeeded because the Revenue failed to prove marketability of the intermediate product and also failed to establish suppression or intent to evade duty.

Ratio Decidendi: In excise proceedings involving an intermediate product arising in manufacture, the Revenue must prove that the product is marketable and known as goods; in the absence of such proof, and without evidence of deliberate suppression or intent to evade duty, duty, limitation, and penalty cannot be sustained.

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