The main legal point established in the judgment is that for excisability, goods must not only be manufactured but also be marketable. The burden of proving marketability lies with the Department, and marketability is essentially a question of fact.

Headnote:
Central Excise Act - Marketability of intermediate product - 28.43 - The court determined whether the intermediate product produced in the manufacture of zinc in the assessee's factory is marketable and classified under Tariff Heading 28.43. The court discussed the legal position laid down in previous judgments and applied the twin tests of 'manufacture' and 'marketability' to the facts of the case. It found that the silver chloride produced in the factory was a chemically defined compound classifiable under Chapter Heading 28.43, satisfying the test of 'manufacture'. However, the Department failed to prove the marketability of the product, and the appeal of the assessee was allowed due to lack of evidence on marketability.
Fact of the Case:

The case involved the determination of marketability of an intermediate product produced in the manufacture of zinc in the assessee's factory, specifically silver chloride, and its classification under Tariff Heading 28.43.
Finding of the Court:

The court found that the silver chloride produced in the factory was a chemically defined compound classifiable under Chapter Heading 28.43, satisfying the test of 'manufacture'. However, the Department failed to prove the marketability of the product, and the appeal of the assessee was allowed due to lack of evidence on marketability.
Issues: The key issue was whether the intermediate product, silver chloride, was marketable and classifiable under Tariff Heading 28.43.
Ratio Decidendi: The court applied the twin tests of 'manufacture' and 'marketability' to determine the excisability of the product. It emphasized that marketability is essentially a question of fact and that the burden was on the Department to prove the marketability of the product.
Final Decision: The appeal of the assessee was allowed, and the impugned judgments and orders of the Tribunal and the Commissioner were set aside, with no order as to costs. The Department was ordered to return the collected amount(s) with interest, if any, in accordance with law.

Judgment

S.H. KAPADIA, J.- The short question which arises for determination in this civil appeal filed by the assessee under Section 35-L(b) of the Central d Excise Act, 1944 is whether the intermediate product produced in the manufacture of zinc in the assessees factory is marketable and if it is marketable then whether the product is to be classified under Tariff Heading 28.43.

2. The assessee is a fully owned Government of India undertaking in the business of manufacturing zinc in its factory. In the course of extraction of zinc from zinc-silver concentrate, a mixture or a combination of zinc chloride, silver chloride, lead and other material emerges from which, by further treatment, sulphates of all other material are filtered out leaving behind the residue of silver chloride.

3. According to the Department, silver chloride thus produced in the factory of the assessee is an assessable commodity liable to duty under Tariff Item 2843.10. According to the Department, the said product is in the form of white paste and that the assessee opts for the slurry form of silver chloride as it is convenient to extract silver and separate other residues of metals subsequent to the stage of emergence of silver chloride.

4. According to the assessee, silver chloride is the residue of the treatment whereby sulphates of other materials are filtered out and, therefore, silver chloride can at best be referred to as an intermediate process not amounting to excisable goods; that such a product has no market; that there is no company to buy such a product; that the silver chloride sold at Rs 9600 per kg at the relevant time was a different product made from silver; that silver chloride which is sold in the market is sold in the special packing and that the content level of silver and the purity level of the silver chloride sold in the market is different from silver chloride produced in the factory of the assessee which has silver content of only 50% to 53%. According to the assessee, the product which emerges in its factory is in the form of slurry and not in the powder form and such slurry has no market and that it is not capable of being used in photography, ceramics, etc. to which silver chloride sold in the market is capable of. According to the assessee, it is a residue and not a compound. According to the assessee, silver chloride sold in the market has purity of 99% and its silver content is 75%. According to the assessee, the silver content in the silver chloride produced in its factory is only 53% and that it would be very costly to purify such silver chloride to compete with silver chloride sold in the market. According to the assessee, the burden was on the Department to prove that the silver chloride which is the residue of the treatment constituted "goods" in terms of manufacture and marketability.

5. Excise duty is levied under Section 3 on goods manufactured or produced in India. Thus, before excise duty is levied on an item, even if it is mentioned in the tariff, two conditions have to be cumulatively satisfied, namely, that the process by which an item is obtained is a process of manufacture and that the item so obtained is commercially marketable and bought and sold in the market or known to be so in the market. This legal position has been laid down by this Court in a number of judgments including Moti Laminates (P) Ltd. v. CCE1, Union of India v. Delhi Cloth & General Mills Co. Ltd.2 and Cadila Laboratories (P) Ltd. v. CCE3.

6. Applying the above twin tests to the facts of this case, we find from the flow chart, which has two sides, namely, zinc line and silver line, that at the stage of "flotation", there is a separation of sulphides of silver and zinc from zinc ferrites, to avoid loss of silver in jarosite waste solids. (See Hindustan Zinc Ltd. v. CCE4, ELT at p. 157.) In fact, the flow chart indicates installation of silver recovery tank for recovery of silver. Further, silver chloride so obtained is essentially a chemic

Click Here to Read the rest of this document

2005 Supreme(SC) 350

The main legal point established in the judgment is that for excisability, goods must not only be manufactured but also be marketable. The burden of proving marketability lies with the Department, and marketability is essentially a question of fact.

Cases Referred (4)