1994 (9) TMI 72 - SC - Central Excise

Marketability, not mere conversion, decides excise duty; Section 2(f) manufacture requires product to be saleable without further processing

SC held that marketability is the decisive test for levy of excise duty and means saleable or suitable for sale without further processing. Although ... Levy of duty - conversion of PVC resin into PVC compound (granules) amounts to 'manufacture' under Section 2(f) - Whether a duty of excise was validly levied on 'PVC compound' produced by the appellant from out of the duty paid PVC resin? Held that:- 'Marketability' is a decisive test for dutiability. It only means 'saleable', or 'suitable for sale'. It need not be in fact, 'marketed'. The article should be capable of being sold or being sold, to consumers in the market, as it is - without anything more. The Appellate Tribunal has not adverted to the above vital aspects nor has it entered a finding that the PVC compound (Granules) is a 'marketable product' as understood in law. The Appellate Tribunal was swayed by the fact that the conversion of PVC resin into PVC compound by the process employed by the appellants amounts to 'manufacture' within the meaning of Section 2(f) of the Act and that by itself will justify the levy of duty. In our view, this is a palpable error committed by the Tribunal. In the absence of a finding, that the goods are 'marketable' i.e. saleable or suitable for sale, we hold that the order of the Appellate Tribunal is infirm. It should be set aside and we hereby do so. We order a remit of the matter to the Appellate Tribunal to consider the appeal afresh and dispose of the same in accordance with law. Issues Involved:1. Whether the conversion of PVC resin into PVC compound (granules) amounts to 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944.2. Whether PVC compound (granules) is a 'marketable commodity' and thus exigible to excise duty.Detailed Analysis:1. Whether the conversion of PVC resin into PVC compound (granules) amounts to 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944:The primary issue in this case was to determine if the process of converting PVC resin into PVC compound (granules) constitutes 'manufacture' as defined under Section 2(f) of the Act. The Assistant Collector of Central Excise initially held that the PVC compound produced by the appellant was exigible to duty. The Appellate Collector of Central Excise upheld this decision, stating that the resultant PVC compound is a new product with different uses than PVC resins, thus amounting to manufacture. The Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi, by a majority, confirmed this view, stating that the conversion process involved significant changes in the physical and mechanical properties of the PVC resin, even though no polymerisation or co-polymerisation occurred. The dissenting Judicial Member, however, opined that the change in form did not amount to manufacture, as there was no legislative intent to levy duty on the product every time there was a change in form.In the Supreme Court, the appellant argued that the PVC compound is merely a modified form of PVC resin and not a different commercial product. The Tribunal's majority decision was based on the detailed process involved in converting PVC resin into PVC compound, which included adding fillers, plasticizers, stabilizers, and lubricants, forming a homogeneously mixed material. The Tribunal concluded that this process amounted to 'manufacture' under Section 2(f) of the Act.2. Whether PVC compound (granules) is a 'marketable commodity' and thus exigible to excise duty:The second critical issue was whether the PVC compound (granules) is a marketable commodity. The appellant contended that there was no finding by any statutory authority that the PVC compound in the form of granules was a marketable commodity. The Supreme Court noted that the Tribunal did not make a finding on the marketability of the PVC compound. The Court emphasized that marketability is a prerequisite for the levy of excise duty, as defined under Section 3 of the Act.The Court referred to several precedents, including the Constitution Bench decision in Union of India v. Delhi Cloth and General Mills Co. Ltd., which stated that for an article to be considered 'goods,' it must be something that can ordinarily come to the market to be bought and sold. The Court also cited the latest decision in A.P. State Electricity Board v. CCE, Hyderabad, which reiterated that marketability is an essential ingredient for dutiability and that the article should be capable of being sold to consumers in the market.The Supreme Court found that the Tribunal had erred by focusing solely on the manufacturing process and not addressing the marketability of the PVC compound. The absence of a finding on the marketability aspect rendered the Tribunal's order infirm. Consequently, the Supreme Court set aside the Tribunal's order and remitted the matter for reconsideration, directing the Tribunal to address the marketability issue and dispose of the appeal in accordance with the law.Conclusion:The Supreme Court concluded that while the process of converting PVC resin into PVC compound (granules) amounts to manufacture under Section 2(f) of the Act, the Tribunal failed to establish that the PVC compound is a marketable commodity. The case was remitted to the Appellate Tribunal for fresh consideration, specifically to determine the marketability of the PVC compound, which is essential for the levy of excise duty.