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Classification of friction cloth as rubberised cotton fabric for excise duty. Analysis: The judgment pertains to the classification of friction cloth for excise duty purposes. The Union of India appealed a decision where the Single Judge ruled against imposing excise duty on friction cloth produced in the manufacturing process of transmission rubber belting, V-shaped belts, and conveyor belts. The process involves impregnating cotton canvas with rubber paste to create friction cloth, which is an intermediary stage in production. The Union of India argued that friction cloth should be classified as rubberised cotton fabric and subjected to excise duty. However, the respondents contended that friction cloth is not marketable or exchangeable as a distinct product and thus not liable for excise duty. The judgment referenced a previous case where it was established that excise duty is not applicable to goods produced at an intermediate stage if they are not marketable as standalone products. The relevant provisions of the Central Excise Act were examined to determine the applicability of excise duty. The court highlighted that excisable goods must be marketable and capable of being bought or sold to be subject to excise duty. Friction cloth, being an intermediary stage in the manufacturing process, does not meet the criteria of being a distinct marketable product. The court analyzed the amendments made to Rules 9 and 49 of the Central Excise Rules, which introduced legal fictions regarding the removal of excisable goods at intermediate stages of production. However, the court emphasized that the liability to pay excise duty arises only when excisable goods are actually manufactured. The judgment clarified that even with the amendments, excise duty is not leviable on goods like friction cloth that are not marketable as standalone products. The court upheld the Single Judge's decision, dismissing the Union of India's appeals and emphasizing the strict construction of taxing statutes in favor of the citizen/assessee when interpreting ambiguous provisions. In conclusion, the court ruled that friction cloth, being an intermediary stage in the manufacturing process and not meeting the criteria of marketability, cannot be classified as rubberised cotton fabric for excise duty purposes. The judgment underscores the importance of strict interpretation of taxing statutes and upholds the decision that excise duty is not applicable to goods like friction cloth that are not economically exchangeable or marketable as standalone products.
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