2005 Supreme(SC) 706

2005(3) Supreme 594
Supreme Court of India
(From Central Excise, Customs and Gold (Control) Appellate Tribunal, New Delhi)
S.N. Variava, Dr. AR. Lakshmanan & S.H. Kapadia, JJ.
Dharampal Satyapal —Appellant
versus
Commissioner of Central Excise, New Delhi —Respondent
Civil Appeal Nos. 1506-1508 of 2000
Decided on 21-4-2005
Counsel for the Parties :
For the Appellant : V. Lakshmikumaran, Alok Yadav and V. Balachandran, Advocates.
For the Respondent : A. Subba Rao, Rupesh Kumar, P. Parmeswaran and B. Krishna Prasad, Advocates.

Important point
A right to claim proforma/modvat credit against duty on final product was different from the defence of bonafides in a case where circumstances mentioned in the proviso to Section 11A(1) of the Central Excise Act stands proved by the department for invoking larger period of limitation.

Headnote:Central Excise and Salt Act, 1944 —Sections 2, 4 and 11A—Central ­Excise Rules, 1944—Rule 9(2)—Excisability and classification—Identity of the product and marketability are the twin aspects to decide chargeabi­lity—Test of classification is, how are the goods known in the market—Sada kimam bought by the assessee as a raw material and blended with saffron, spices, perfumes and menthol—Compound (kimam) was used in the manufacture of chewing tobacco which was sold under the brand name ‘Tulsi Zafrani Zarda’—Assessee manufacturing and clearing the said compound (kimam) without the knowledge of the department—Assessee, a partnership firm was not registered with the Central Excise department as a manufacturer—Commissioner came to the conclusion that the assessee had deliberately and without any reason suppressed its affairs—Tribunal upheld the order of Commissioner—Whether impugned order of the Tribunal is sustainable—(Yes)—Whether invocation of the extended period of limitation was justified—(Yes).

       Held : Marketability is an attribute of manufacture. It is an essential criteria for charging duty. Identity of the product and marketability are the twin aspects to decide chargeability. Dutiability of the product depends on whether the product is known to the market. The test of marketability is that the product which is made liable to duty must be marketability in the condition in which it emerges. Marketable means saleable. The test of classification is, how are the goods known in the market. (Para 18)

       Applying the above tests to the facts of this case, we find that sada kimam was bought by the assessee as a raw material which was then blended with saffron, perfumes, menthol etc. to form a compound which was then packed in “balties” and cleared to the above three licensed units at Okhla Industrial Estate, Phase-II, New Delhi, Noida (UP) and Barotiwala (HP), where Tulsi Zafrani Zarda was manufactured. That, the assessee used to buy a similar compound (Lucknowi kimam) from the market from time to time and used in the manufacture of their final product. That, the compound (kimam) prepared by the assessee at 96, Okhla Industrial Estate, Phase-III, New Delhi and at E-1, Maharani Bagh, New Delhi, in the highly concentrated form, was cleared therefrom and taken to the above three licensed factories where it was diluted and used in the manufacture of Tulsi Zafrani Zarda. In their reply to the show-cause notice, the assessee admitted that the said “compound” was not capable of being used for any purpose, other than for manufacture of branded chewing tobacco (underline supplied by us). This statement of the assessee in reply to the show-cause notice establishes that the said compound (kimam) was not edible, it was not capable of consumption as such, however, it was used as preparation in the manufacture of Tulsi Zafrani Zarda which was a branded chewing tobacco manufactured in the licensed factories of the assessee at Okhla Industrial Estate, Phase-II, New Delhi, Noida (UP) and Barotiwala (HP). Further, from time to time, the assessee herein bought from the market a similar compound (Lucknowi kimam) and used it in the manufacture of the final product which indicated that on blending of sada kimam with saffron, spices, menthol etc., the compound in question (kimam) which emerged was a distinct, identifiable product, known to the market as kimam. Hence, we do not find any infirmity in the impugned judgment of the tribunal which has held that the said compound (kimam) was marketable and classifiable as chewing tobacco or a preparation for chewing tobacco under chapter sub-heading 2404.49/2404.40. (Para 19)

       At the outset, it may be stated that the investigation in this case was focussed on the excisability, manufacture and clearance of the compound (kimam) without payment of duty from the said two unlicensed units at 96, Okhla Industrial Estate, Phase-III, New Delhi and E-1, Maharani Bagh, New Delhi. That, the admissibility of the proforma/modvat credits, which could have warranted an enquiry at the end of the above three factories at Okhla Industrial Estate, Phase-II, New Delhi, Noida (UP) and Barotiwala (HP) as to receipt and utilization of the said compound, was not the subject of investigation. Therefore, the show-cause notice was confined to demand for duty on the goods manufactured and cleared from the two unlicensed and unregistered units. (Para 20)

       The adjudication in this case was confined to the question of excisability and concealment of the existence of two units in which the compound (kimam) was manufactured. No explanation has been given by the assessee for not disclosing the affairs of these units, particularly when the assessee was in business for couple of years and when the assessee had been dealing with other traders who operated from licensed factories. It was for the assessee to explain the reasons for not getting the units registered or licensed. It was for the assessee to explain its failure to maintain the records under the 1944 Act and rules thereunder. (Para 24)

       Modvat is basically a duty collecting procedure which provides relief to the manufacturer on the duty element borne by him in respect of the inputs used by him. The relief is given under the modvat scheme on the actual payment of duty on the input. On such payment, the assessee gets a right to claim adjustment/set-off against the duty on the final product. The question of duty adjustment/set-off against duty on the final product was not in issue. In any event, no record on credit entitlement was produced. A right to claim proforma/modvat credit against duty on final product was different from the defence of bonafides in a case where circumstances mentioned in the proviso to section 11A(1) stands proved by the department for invoking larger period of limitation. The burden to prove the defence of bonafides was on the assessee and the assessee in this case has failed to prove its bonafides. Under modvat, excisable finished products made out of duty-paid inputs are given relief of excise duty to the extent of duty paid on inputs. In the circumstances, we are satisfied that the department was justified in invoking the extended period of limitation under the proviso to section 11A(1). (Para 25)