2000 (9) TMI 693 - AT - Central Excise

Summary

Issues Involved:
1. Marketability of the intermediate product (rubberized cotton cord fabric - RCC fabric).
2. Burden of proof regarding marketability.
3. Shelf life and its impact on marketability.
4. Invocation of extended period of limitation.
5. Imposition of interest and penalty under Sections 11AB and 11AC of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Marketability of the Intermediate Product:
The core issue was whether the RCC fabric, an intermediate product used in the manufacture of cycle tyres, was marketable and hence dutiable. The Department claimed that RCC fabric was an "independent stable intermediate excisable product well-known to tyre-manufacturers traders all over the world" and chargeable to duty at 10% ad valorem under Tariff sub-heading 5905.10. The appellants argued that the RCC fabric was neither marketed nor marketable and relied on case law and CBEC's circular dated 30-6-1999, which clarified that certain intermediate products captively consumed and not sold commercially were not chargeable to duty due to their short shelf life.

2. Burden of Proof Regarding Marketability:
The Tribunal noted that the burden to prove marketability lies with the Department. It was essential for the Department to specifically allege in the show-cause notice (SCN) that the RCC fabric was marketable. The SCN lacked such an allegation, making the Commissioner's finding of marketability questionable. The Supreme Court in Moti Laminates held that the mere mention of an item in the Tariff schedule does not satisfy the test of marketability unless it is shown that the intermediate products were capable of being marketed.

3. Shelf Life and Its Impact on Marketability:
The Commissioner based his finding of marketability on the appellants' letter dated 29-7-1998, which stated that the RCC fabric had a shelf life of two days. However, the appellants retracted this statement in their reply to the SCN, claiming the shelf life to be only a few hours. The Tribunal found that the Department did not take any steps to prove the shelf life of two days, such as conducting a chemical test or consulting technical literature. The Tribunal rejected the Commissioner's finding of a two-day shelf life due to a lack of evidence. Even if the shelf life was assumed to be two days, it was insufficient to hold the product as marketable. The Tribunal referred to a similar case (Metro Tyres) where a short shelf life was deemed inadequate for marketability.

4. Invocation of Extended Period of Limitation:
The appellants contended that the extended period of limitation was not invocable as the Department was aware of the facts, and the SCN was issued 4 to 5 years after the period of dispute, making it time-barred. The Tribunal did not delve into this issue in detail as the demand of duty was vacated on merits.

5. Imposition of Interest and Penalty under Sections 11AB and 11AC:
The Tribunal held that since the demand of duty was vacated, there was no question of imposing any interest or penalty. Additionally, it was noted that Sections 11AB and 11AC were not in force during the relevant period, and thus, no interest or penalty could be charged or imposed.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal, concluding that the RCC fabric was not marketable and hence not excisable as 'goods' under Section 3 of the Central Excise Act. The demand of duty, interest, and penalty was vacated.