2000 JTR(SC) 741
2000 AIR(SC) 3424 ; 2000 AIR(SCW) 1145 ; 2000 117 ELT 529 ; 2001 2 GLR 1717 ; 2000 4 JT 323 ; 2001 3 KLT(SN) 31 ; 2000 3 Scale 120 ; 2000 4 SCC 18 ; 2000 2 SCR 1062 ; 2001 KHC 881 ; 2000 3 Supreme 251
2000(3) Supreme 251
SUPREME COURT OF INDIA
(From Central Excise Customs and Gold (Control) Appellate Tribunal, New Delhi)
S. Rajendra Babu & R.C. Lahoti, JJ.
Collector of Central Excise, Baroda -Appellant
versus
United Phosphorus Ltd. -Respondent
Civil Appeal Nos. 8999-9000 of 1996
Decided on 7-4-2000
Counsel for the Parties :
For the Appellant : Gauri Shankar Murti, K.C. Kaushik, P. Parmeshwaran, Advocates.
For the Respondent : Dushyant A. Dave, Sr., Jay Savla, J.K. Das, N. Menon, Advocates.
IMPORTANT POINT
Though intermediate goods coming into existence during manufacture of main goods may be specified in the schedule as excisable, they would not be subjected to duty unless they satisfy the test of marketability; the onus to establish that an article is goods and marketable is on the department.
Act Referred :CENTRAL EXCISE ACT : S.3
(A) The Central Excise Act, Section 3, read with the tariff subheading 3808.10, governs the levy of excise duty on goods manufactured in the course of an integrated chemical process. The Act contemplates that excise is a duty on goods as specified in the Schedule, and the taxable event is the manufacture of those goods. The doctrine of marketability under the tariff and related rules determines whether an intermediate product, even if produced in a multistage process and referenced in documents such as the Drawback Rules, can be treated as an excisable good.
(B) Key legal principles include: (i) excise duty is chargeable on goods that are usable, movable, saleable, and marketable; (ii) the taxable event is the manufacture of goods resulting from a process yielding a distinct commodity known in the market for buying and selling; (iii) mere presence in the tariff or mention in Drawback Rules is insufficientthe onus is on the department to prove marketability; and (iv) intermediate products are not automatically excisable unless they satisfy the test of marketability established in leading precedents.
Facts of the case:
The respondents manufactured insecticides, fungicides, weedicides, and pesticides under tariff subheading 3808.10. During the integrated multistage chemical process, three intermediate productsMercuric Acetate, Para Chloro Phenyl Valeric Acid, and Chloro Synthemic Acid Chloridewere produced. The Collector of Central Excise adjudicated these intermediates as excisable goods and imposed duty. The respondents appealed, and the Collector (Appeals) exonerated them. The Revenue challenged the order before the CEGAT, which dismissed the appeals, leading to the present invocation of this Court.
Findings of Court:
The Court held that the three intermediate products, although arising during the manufacturing process, were not marketable goods within the meaning of the Excise Act and tariff principles. The Department failed to demonstrate that these intermediates were capable of being marketed, separated, or sold in the form in which they emerged from the reaction process. The Tribunals factual finding that they were not marketable was not challenged or disturbed.
Issues:
Whether the intermediate chemical products produced in a multistage process and not capable of being marketed as distinct goods can be subjected to excise duty under the Central Excise Act; whether mere tariff listing and reference in Drawback Rules suffice to deem them excisable; and whether the department discharged the burden of proving marketability.
Ratio Decidendi:
Excise duty is levied on goods that are the result of manufacture and must be usable, saleable, and marketable. The onus to establish that an intermediate product qualifies as a marketable good lies on the department. In the absence of evidence showing marketability, separation, and commercial availability, intermediate products are not liable to excise.
Result:
The appeals are dismissed as devoid of merit, without any order as to costs.
(A) The Central Excise Act, Section 3, read with the tariff subheading 3808.10, governs the levy of excise duty on goods manufactured in the course of an integrated chemical process. The Act contemplates that excise is a duty on goods as specified in the Schedule, and the taxable event is the manufacture of those goods. The doctrine of marketability under the tariff and related rules determines whether an intermediate product, even if produced in a multistage process and referenced in documents such as the Drawback Rules, can be treated as an excisable good.
(B) Key legal principles include: (i) excise duty is chargeable on goods that are usable, movable, saleable, and marketable; (ii) the taxable event is the manufacture of goods resulting from a process yielding a distinct commodity known in the market for buying and selling; (iii) mere presence in the tariff or mention in Drawback Rules is insufficientthe onus is on the department to prove marketability; and (iv) intermediate products are not automatically excisable unless they satisfy the test of marketability established in leading precedents.
Facts of the case:
The respondents manufactured insecticides, fungicides, weedicides, and pesticides under tariff subheading 3808.10. During the integrated multistage chemical process, three intermediate productsMercuric Acetate, Para Chloro Phenyl Valeric Acid, and Chloro Synthemic Acid Chloridewere produced. The Collector of Central Excise adjudicated these intermediates as excisable goods and imposed duty. The respondents appealed, and the Collector (Appeals) exonerated them. The Revenue challenged the order before the CEGAT, which dismissed the appeals, leading to the present invocation of this Court.
Findings of Court:
The Court held that the three intermediate products, although arising during the manufacturing process, were not marketable goods within the meaning of the Excise Act and tariff principles. The Department failed to demonstrate that these intermediates were capable of being marketed, separated, or sold in the form in which they emerged from the reaction process. The Tribunals factual finding that they were not marketable was not challenged or disturbed.
Issues:
Whether the intermediate chemical products produced in a multistage process and not capable of being marketed as distinct goods can be subjected to excise duty under the Central Excise Act; whether mere tariff listing and reference in Drawback Rules suffice to deem them excisable; and whether the department discharged the burden of proving marketability.
Ratio Decidendi:
Excise duty is levied on goods that are the result of manufacture and must be usable, saleable, and marketable. The onus to establish that an intermediate product qualifies as a marketable good lies on the department. In the absence of evidence showing marketability, separation, and commercial availability, intermediate products are not liable to excise.
Result:
The appeals are dismissed as devoid of merit, without any order as to costs.
JUDGMENT
R.C. Lahoti, J.-The respondents are engaged in the manufacture of insecticides, fungicides, weedicides and pesticides falling under Tariff sub-heading 3808.10 and excisable thereunder. During the process of manufacturing Mercuric Acetate (MA), Para Chloro Phenyl Valeric Acid (PCA), and Chloro Synthemic Acid Chloride (CSA Chloride) came into existence as intermediate products. The Collector of Central Excise passed orders of adjudication holding the abovesaid three intermediate products liable to payment of excise duty. The respondents preferred appeals before the Collector (Appeals) who has allowed the appeals exonerating the said three intermediate products from levy of excise duty. The appeals preferred by the Revenue against the order of Collector (Appeals) have been dismissed by a common order by the CEGAT. The aggrieved Revenue has come up by filing these appeals to this Court.
2. It is well settled by a series of pronouncements of this Court from Bhor Industries Ltd. v. Collector of Central Excise1 to Union of India v. Delhi Cloth and General Mills Co. Ltd.2 that excise is a duty on goods as specified in the Schedule. The taxable event in the case of excise duty is the manufacture of goods. In order to be excisable goods (i) there must be goods (ii) having come into existence as a result of manufacture, and (iii) to be goods, the article must be known to the market as such and as would ordinarily come to the market for being bought and sold. Actual sale of the article is not required but it must be capable of being bought and sold. Intermediate products even if captively consumed may be liable to levy of excise duty if they satisfy the test of being goods on the touchstone of marketability. In Union of India v. Delhi Cloth & General Mills Co. Ltd. (supra) the following statement of law from Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad3 has been re-affirmed.
"The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be usable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling."
(underlining by us)
3. Though the intermediate goods so coming into existence may be specified in the Schedule as excisable they would not be subjected to duty unless they satisfy the test of marketability. In the case of Delhi Cloth and General Mills Co. Ltd. (supra) the intermediate product was calcium carbide, which initially produced in the form of cakes, was broken into smaller pieces after the cakes attained room temperature and the broken pieces were forthwith put into use for the production of acetylene gas. The Appellate Collector had found that the calcium carbide which was sold in the market was packed in airtight containers and conformed to ISI specifications which the intermediate product of DCM did not. Their Lordships held that as the calcium carbide manufactured by the DCM for further utilisation in the production of acetylene gas was not of a purity that rendered it marketable nor was it packed in such a way as to make it marketable, that is to say, in airtight containers it was not excisable on the ratio of Moti Laminates. As held in Collector v. Amba Lal Sara Bhai Enterprise4 onus to establish that an article is "goods" and marketable, is on the department.
4. In the case at hand the Collector (Appeals) has found that the abovesaid three intermediate products came into existence at a certain stage of a multiple stage integrated chemical process leading to the final products and therefore they could not be held to be goods as understood in commercial parlance because they were not marketable. The department had failed in showing if any facility existed for separation of the said three products and whether in the form in which the said three products came into existence in the reaction process were capable of being marketed. The finding of fact so arrived at has not been challenged much less dislodged before the Tribunal. 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. The Tribunal has observed that these facts and mere mentioning of an item in Drawback Rules with reference to a different context was not enough to satisfy the test of marketability unless it was shown that the intermediate products were capable of being taken to market and bought and sold.
5. No fault can be found with the view taken by the Tribunal. The appeals are devoid of any merit and hence are dismissed though without any order as to costs.
(C.R.) Appeals dismissed.
**************