2001 (1) TMI 340 - AT - Central Excise

Summary

Issues Involved:
1. Liability to pay additional excise duty on intermediate product.
2. Classification and marketability of intermediate product.
3. Applicability of Notification No. 67/95-C.E., dated 16-3-1995.
4. Validity of the impugned order by the Commissioner of Central Excise.

Detailed Analysis:

1. Liability to pay additional excise duty on intermediate product:
The appellants were engaged in the manufacture of acrylic knitted blankets and during a factory visit, Central Excise Officers observed the emergence of an intermediate product, knitted fabrics (processed), classifiable under Tariff Heading 6001.92. This product was subject to basic excise duty at 12% and additional excise duty at 8%. The appellants did not disclose this intermediate product in their classification lists nor entered it in statutory records. Despite the exemption from basic excise duty under Notification No. 67/95-C.E., the intermediate product was not exempt from additional excise duty. Consequently, a demand of Rs. 49,42,921/- was raised for additional excise duty along with a proposed penalty.

2. Classification and marketability of intermediate product:
The appellants contested the emergence of any intermediate product known as knitted fabric (processed) during the manufacture of blankets, arguing that no such product emerged at the intermediate stage and that it did not qualify as 'goods' under the Central Excise Act due to lack of marketability. The manufacturing process involved continuous production of unfinished twin blankets in lengths of 80 meters, which were then processed and finished into single blankets. The Commissioner, however, confirmed an additional excise duty of Rs. 5,99,336/- on the intermediate product used for blankets cleared for home consumption, imposing a penalty of Rs. 1,00,000/- and demanding interest at 20%, later corrected to 24%.

3. Applicability of Notification No. 67/95-C.E., dated 16-3-1995:
The appellants argued that the intermediate product was exempt from basic excise duty under Notification No. 67/95-C.E. The Commissioner's view that the intermediate product was subject to additional excise duty was contested, as the appellants claimed no such intermediate product emerged during their continuous and uninterrupted manufacturing process. The expert report from Professor P.K. Hari supported the appellants' claim that the machinery and process were exclusively for blanket production, and no separate intermediate product was marketable.

4. Validity of the impugned order by the Commissioner of Central Excise:
The Tribunal found that the manufacturing process adopted by the appellants was composite, continuous, and uninterruptable, making it impossible for any intermediate product to be cut and processed separately. The so-called knitted fabric (processed) did not emerge as a distinct marketable commodity. The Tribunal emphasized that for an article to be considered 'goods' under the Central Excise Act, it must be marketable, which was not the case here. The Tribunal concluded that no intermediate product known as knitted fabric (processed) emerged during the manufacturing process, and thus, the additional excise duty imposed was legally erroneous and unsustainable.

Conclusion:
The impugned order of the Commissioner was set aside, and the appeal of the appellants was accepted with consequential relief as permissible under the law. The Tribunal held that the intermediate product did not qualify as 'goods' with marketability and thus was not subject to additional excise duty.