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 ... Marketability as an essential ingredient for dutiability - manufacture as transformation resulting in a new and distinct article - excisable goods specified in the tariffMarketability as an essential ingredient for dutiability - excisable goods specified in the tariff - Whether excise duty was validly levied on PVC compound (granules) produced from duty-paid PVC resin in the absence of any finding that the PVC compound is a marketable product - HELD THAT: - The Court held that marketability is a pre-requisite for an article to be exigible to excise duty under the charging provision. The authorities below failed to record any finding that the PVC compound (granules) produced by the assessee was a marketable product, and counsel for the revenue conceded the absence of such a finding. As marketability is essentially a question of fact and an indispensable element of dutiability, the Tribunal's levy based solely on a conclusion of manufacture without a finding on marketability was infirm. The order of the Appellate Tribunal was therefore set aside and the matter remitted for fresh consideration.Tribunal's order holding the PVC compound exigible to excise duty set aside for want of a finding on marketability; matter remitted for fresh adjudication.Manufacture as transformation resulting in a new and distinct article - Whether the question whether the conversion of PVC resin into PVC compound amounts to 'manufacture' was finally determined by this Court - HELD THAT: - The Court recorded the rival views of the Tribunal (majority finding that the conversion amounted to 'manufacture' and a dissent to the contrary) and reviewed authoritative tests of 'manufacture' - namely that processes must result in a transformation producing a new article recognised in the market. However, the Court refrained from finally resolving the correctness of the Tribunal's rival conclusions on manufacture, proceeded for present purposes on the basis that manufacture may be found, and directed a remit for reconsideration. Thus the question of whether the conversion constitutes 'manufacture' was not finally adjudicated and requires fresh consideration by the Tribunal.Issue of whether the conversion amounts to 'manufacture' not finally decided by this Court; remitted to the Appellate Tribunal for fresh consideration.Final Conclusion: The Appellate Tribunal's order charging excise duty on PVC compound (granules) for the period 18-6-1977 to 28-6-1977 is set aside for lack of any finding on marketability; the matter is remitted to the Tribunal for fresh disposal in accordance with law, including consideration of marketability and related issues; no order as to costs. 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.