2007 (5) TMI 446 - AT - Central Excise

Excisability - Marketability - Held that - In the absence of any evidence, the product cannot be taxed by the Revenue authorities - In the present appeal before us, the Revenue has not produced any concrete evidence as to the marketability of the intermediate products captively consumed by the appellants in their factory for further manufacture of finished goods. In the absence of any such evidence, we are of the view that the appellants have made out a strong case in their favor - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Dutiability of intermediate products.
2. Marketability of intermediate products.
3. Limitation for issuing the show cause notice.

Detailed Analysis:

1. Dutiability of Intermediate Products:
The primary issue is whether the intermediate compounds of precious metals, which arise during the manufacturing process and are captively consumed for the production of exempted goods, are liable to payment of Central Excise duty. The adjudicating authority concluded that these intermediate products are dutiable, asserting that even if a product is not sold but used within the factory, it is subject to duty if it is complete, identifiable, and can be commercially recognized as a new article. The authority cited several judicial pronouncements to support this view, including *Aditya Mills Ltd. v. UOI* and *Pratap Rajasthan Copper Foils v. CCE*. The appellants argued against this, stating that the intermediate products are not marketable as such and hence should not be dutiable.

2. Marketability of Intermediate Products:
The marketability of the intermediate products is a crucial factor in determining their excisability. The appellants contended that no evidence was provided regarding the marketability of the intermediate products in their existing form. The adjudicating authority, however, dismissed this argument, stating that the products are marketable if they are complete and identifiable. The Revenue relied on the appellants' website, which listed the products for sale, to argue that the products are marketable. However, the Tribunal found that no concrete evidence, such as market samples or tests, was provided to prove the marketability of the intermediate products in the form they are consumed. The Tribunal emphasized that the burden of proof for marketability lies with the Revenue, as established in *Cadila Laboratories Pvt. Ltd. v. CCE* and *Hindustan Zinc Ltd. v. CCE*.

3. Limitation for Issuing the Show Cause Notice:
The appellants also challenged the show cause notice on the grounds of limitation, arguing that the process of manufacture was disclosed to the authorities during an investigation in 1998. They claimed that the Department's failure to act on this information within the statutory period precludes them from invoking the extended period of limitation under Section 11A. The adjudicating authority, however, dismissed this argument, stating that the appellants had not declared the emergence of intermediate products, thus justifying the extended period of limitation.

Judgment:
The Tribunal, after considering the submissions and evidence, concluded that the marketability of the intermediate products was not established by the Revenue. The Tribunal cited several Supreme Court judgments, including *Hindustan Zinc Ltd.*, *Union of India v. Delhi Cloth & General Mills Ltd.*, and *Hindustan Ferodo Ltd. v. CCE*, to emphasize that the burden of proving marketability lies with the Revenue and that products must be marketable in the form they are sought to be taxed. Without concrete evidence of marketability, the Tribunal ruled that the intermediate products could not be subjected to excise duty. Consequently, the appeals were allowed on merits, and the impugned orders were set aside with consequential relief, if any.

Conclusion:
The Tribunal's judgment underscores the importance of establishing the marketability of intermediate products for them to be dutiable under Central Excise law. The burden of proof lies with the Revenue, and without substantial evidence, such products cannot be taxed. The appeals were allowed, and the orders imposing duty and penalties were set aside.

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