Marketability as tread rubber must be proved before higher duty applies; procedural accounting lapses may still justify limited penalty.

Duty could not be demanded on waste and scrap as tread rubber because the record did not reliably establish that the cleared goods were commercially marketable as tread rubber. The contemporaneous accounts and supporting materials were accepted, and the evidence was insufficient to apply the higher tariff treatment merely from description or quantity ratio. Penalty was justified only to a limited extent for procedural default, including failure to file a remission application and improper RG 1 accounting, since the clearances were made on prescribed documents but the accounting lapses remained relevant.

---

---

Issues: (i) Whether the goods cleared as waste and scrap were liable to duty as tread rubber. (ii) Whether penalty was sustainable for non-filing of remission application and related accounting irregularities.

Issue (i): Whether the goods cleared as waste and scrap were liable to duty as tread rubber.

Analysis: The evidence on record did not satisfactorily establish that the goods actually cleared as waste and scrap were marketable as tread rubber. The contemporaneous accounts and supporting materials were accepted by the first appellate authority, which found the record of personal hearing and statement unreliable and extended the benefit of doubt to the assessee. The absence of convincing evidence of marketability as tread rubber meant that mere reference to the tariff description and the quantity ratio was insufficient to fasten duty at the higher rate.

Conclusion: The demand of duty as tread rubber was not sustained and was upheld as rejected.

Issue (ii): Whether penalty was sustainable for non-filing of remission application and related accounting irregularities.

Analysis: The failure to file a remission application did not justify treating the clearances as tread rubber for duty purposes, but the omission could support a limited penalty for procedural lapse and improper RG 1 accounting. The appellate authority accepted that clearances were made on prescribed documents, yet the non-filing of remission and non-transfer of entries from tread rubber to waste or scrap warranted penal consequence to that extent.

Conclusion: Penalty was sustained only to the limited extent of the procedural default.

Final Conclusion: The duty demand was not upheld, but the penalty was revived to a limited extent, resulting in a partial success for the Revenue.

Ratio Decidendi: A levy as a higher-classified excisable product cannot be sustained without reliable evidence that the goods were commercially marketable as that product, though procedural non-compliance in accounting and remission may still attract a limited penalty.

---