2009 (10) TMI 603 - AT - Central Excise

Application of stay - Classification - Demand - It is well settled that no product is goods unless shown to be marketable by the department - The only argument advanced before the Tribunal was that the three items were mentioned as goods in the dictionary and in the excise tariff and Mercuric Acetate (MA) was also mentioned as one of the items entitled to drawback in Duty Drawback Rules - there is no evidence whatsoever that the mixture of graphite and clay is at all marketable - The department failed to produce any evidence that the goods are marketable - Decided in favour of assessee

Summary

Issues:
Classification of "mixture of graphite and clay" under Central Excise Tariff Act, 1985 - Whether it amounts to "manufacture" - Applicability of duty, interest, and penalty - Marketability of the mixture.

Analysis:

Issue 1: Classification and Manufacture
The core issue in the appeals revolved around determining whether the "mixture of graphite and clay" used in producing pencil lead constitutes "manufacture" under the Central Excise Tariff Act, 1985. The original authority classified the mixture under Chapter Heading No. 68151020, imposing duty, interest, and penalty. The Commissioner (Appeals) upheld this classification. The appellant argued that the mixture is used solely in manufacturing pencil lead and pencils, both falling under Chapter 96 with a duty rate of 'Nil.' They contended that the mixture has a short lifespan, is not marketable, and should not be excisable. Citing legal precedents and the fact that the mixture was not sold in the market, the appellant challenged the excisability of the goods.

Issue 2: Marketability and Duty Exemption
The Revenue, represented by the ld. SDR, maintained that the appellant previously enjoyed full exemption under Notification No. 6/2002-C.E. until its withdrawal, justifying the duty demand post-exemption withdrawal. They argued that the mixture of graphite and clay is known in the market and, therefore, marketable, regardless of actual sales. The crux of the Revenue's stance was the marketability of the goods, emphasizing that the mixture, though not sold, could still be considered marketable. They contended that since the mixture was marketable but used captively, duty liability persisted.

Issue 3: Marketability and Legal Precedents
Upon reviewing the records and arguments, it was found that the "mixture of graphite and clay" was neither bought nor sold in the market. The Commissioner (Appeals) noted that the appellant had availed the exemption notification, leading to the goods being treated as excisable. The legal representative emphasized that inadvertent exemption availing was followed by a challenge to the excisability of the goods. Citing the legal principle that a product is not considered "goods" unless demonstrably marketable, the Tribunal referred to the Supreme Court's decision on marketability criteria. The Tribunal highlighted the absence of evidence proving marketability and referenced a previous case where a similar issue was decided in favor of the assessee due to the lack of marketability evidence.

Conclusion
After thorough deliberation, the Tribunal concluded that the demand for duty and penalty was unsustainable due to the lack of evidence supporting the marketability of the "mixture of graphite and clay." Consequently, the impugned orders were set aside, and the appeals were allowed with consequential reliefs. The stay applications were disposed of accordingly, with the operative part of the order pronounced in open court on 27-10-2009.