1. Dispute regarding whether intermediate products created during the manufacture of insecticides are excisable goods based on the test of marketability. (Para 1 )
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2000 Supreme(SC) 741
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 Points
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.
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.
Subject
Excise Duty - Intermediate Products
Act Referred
CENTRAL EXCISE ACT: S.3
Headnote
Central Excise-Tariff sub-heading 3808.10-Manufacturer of insecticides, fungicides and weedicides-Mercuric Acetate (MA), Para Chloro Phenyl Valeric Acid (PCA) and Chloro Synthemic Acid Chloride (CSA Chloride) coming into existence as intermediate products-Collector holding intermediate products liable to excise duty-Intermediate products in question not capable of being marketed-Though intermediate goods coming into existence may be specified in schedule as excisable they would not be subjected to duty unless they satisfy test of marketability-Tribunal rightly held that goods in question not liable to excise duty.
Held : 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. 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. Onus to establish that an article is "goods" and marketable, is on the department. (Paras 2 and 3)
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. No fault can be found with the view taken by the Tribunal. (Paras 4 and 5)
Legal Category Hierarchy
Table of Contents
2. Revenue contended that intermediate products are excisable as they are listed in the dictionary, excise tariff, and Duty Drawback Rules. (Para 4 )
3. Intermediate products in an integrated chemical process are not excisable if the department fails to prove they are capable of being bought and sold. (Para 4 )
4. Intermediate products are excisable only if they satisfy the marketability test—being distinct commodities known to the commercial community and capable of being bought and sold. (Para 2 , 3 )
5. Appeals dismissed. (Para 5 )
6. What is the taxable event for excise duty and what constitutes excisable goods?
The taxable event is the manufacture of goods. To be excisable, an article must be goods resulting from manufacture and must be known to the market as such, being capable of being bought and sold. (Para 2 )
7. Are intermediate products always subject to excise duty if they are specified in the Tariff Schedule?
No. Even if intermediate goods are specified in the Schedule, they are not subject to duty unless they satisfy the test of marketability. (Para 3 )
8. Who bears the burden of proof to establish that an article is marketable goods?
The onus to establish that an article constitutes goods and is marketable rests on the department. (Para 3 )
9. Does the inclusion of a product in a dictionary or Duty Drawback Rules suffice to prove marketability?
No. Mere mention in a dictionary, excise tariff, or Drawback Rules is insufficient to satisfy the test of marketability unless it is shown the products are capable of being bought and sold. (Para 4 )
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 t
