1995 (2) TMI 67 - SC - Central Excise

Excise duty applies only to marketable goods, not items merely listed in Tariff Schedule under Item 15A

MOTI LAMINATES PVT. LTD. Versus COLLECTOR OF CENTRAL EX., AHMEDABAD

The SC held that excise duty applies only to goods that are marketable or capable of being marketed, not merely to items listed in the Excise Tariff ... Whether various goods mentioned in the Schedule of Excise Tariff are dutiable as such or they would be, 'excisable goods' as defined in the Act, only when they are marketable or capable of being marketed? Whether resin or resol produced by the appellants can be considered to be goods for purposes of levy under the Act? Held that:- Although the duty of excise is on manufacture or production of the goods, but the entire concept of bringing out new commodity etc. is linked with marketability. An article does not become goods in the common parlance unless by production or manufacture something new and different is brought out which can be bought and sold. Since the test of marketability or capable of being marketable applies even to those goods which are mentioned in the tariff item the intermediate resin produced by the appellants which are mentioned as resols under Tariff Item No. 15A were not exigible to duty. The finding of the Tribunal that once the product manufactured by the appellants answered the chemical description of the product under Tariff Item 15A it was assessable to duty whether it was marketable or not was thus not well founded.In the result, these appeals succeed and are allowed. The question of law raised by the appellants is decided by saying that resin at `A' stage which are chemically known as `resols' could not be subjected to duty. In favour of assessee. The core legal question considered in this judgment is whether various goods specified in the Schedule of the Central Excise Tariff are dutiable as such, or whether they qualify as 'excisable goods' under the Central Excises & Salt Act, 1944 only when they are marketable or capable of being marketed. This issue arises particularly in the context of intermediate products produced during a continuous manufacturing process, which are captively consumed and not sold in the market.The principal issue can be broken down as follows:Whether intermediate products, specifically phenol-formaldehyde resin solutions (referred to as 'resols' at the A-stage of manufacture), are 'goods' liable to excise duty under the Act.Whether the test of marketability or capability of being marketed applies to such intermediate goods, especially when they are captively consumed and not sold in the open market.The impact of amendments to the Central Excise Rules in 1979, which made captively consumed goods dutiable, on the requirement of marketability for excise liability.The interpretation of the tariff schedule entries, particularly Item 15A relating to plastics and resins, and whether chemical nomenclature alone suffices to impose excise duty irrespective of marketability.Issue-wise Detailed Analysis:1. Whether Intermediate Products (Resols) Constitute 'Goods' for Excise Duty:The legal framework centers on Section 2(d) of the Central Excises & Salt Act, defining 'excisable goods' as those specified in the Schedule, and Section 3, which levies duty on goods produced or manufactured. The Act does not define 'goods', but the Court referred to prior authoritative decisions interpreting 'goods' in the context of excise law.Precedents such as Union of India v. Delhi Cloth & General Mills Co. Ltd. and South Bihar Sugar Mills Ltd. v. Union of India emphasize that to be 'goods', an article must be capable of being bought and sold in the market - i.e., marketable. Manufacture implies transformation resulting in a new and distinct article known to the market.The appellants produced phenol-formaldehyde resin solutions (resols) at the A-stage, which were unstable, had a short shelf life, and were used in a semi-processed state without further treatment or stabilizers. The Assistant Collector found the solutions unstable and not marketable in their existing form. The Collector (Appeals) and the Tribunal had differing views: the Collector (Appeals) held that intermediate products must be marketable or known to the commercial community to be excisable; the Tribunal held that since the product answered the chemical description in the tariff schedule, it was liable to duty regardless of marketability.The Court examined chemical literature confirming that resols at the A-stage are fluid, soluble, and unstable, requiring stabilizers to be marketable. The appellants' product lacked such stabilization and had a limited usable life, dependent on controlled conditions. Therefore, the Court found it doubtful that these intermediate products were 'goods' in the ordinary commercial sense.2. Application of the Test of Marketability to Intermediate and Captively Consumed Goods:The Court reiterated that excise duty is levied on manufacture or production of goods that are useable, moveable, saleable, and marketable. The rationale is that excise duty is linked to goods entering the market for sale. Mere production of an intermediate product that is not marketable does not attract excise duty.Prior to 1979, captively consumed goods were not dutiable because they were not marketed. Amendments to Rules 9, 49, and 173(1) of the Central Excise Rules in 1979 extended duty to captively consumed goods by creating a statutory presumption that such goods satisfy the test of marketability. However, this presumption is rebuttable by proving that the goods are neither marketable nor capable of being marketed.The Court relied on precedents such as Bhor Industries Ltd. v. Collector of Central Excise and Collector of Central Excise v. Ambalal Sarabhai Enterprises, which emphasized that the test of marketability or capability to be marketed applies equally to captively consumed goods. In Bhor Industries, crude PVC films used as intermediates and captively consumed were held not to be excisable goods due to lack of marketability.Applying this principle, the Court held that the appellants' resin solutions, despite being captively consumed, were not marketable or capable of being marketed in their unstable form, and thus not liable to excise duty.3. Interpretation of Tariff Schedule Item 15A and Chemical Nomenclature:The Department argued that since 'resols' are specifically mentioned under Item 15A of the Tariff Schedule, the intermediate resin produced by the appellants was liable to duty once it was established chemically as resols, regardless of marketability. The Department contended that the test of marketability should not apply to chemical goods known by their chemical nomenclature.The Court rejected this argument, emphasizing that the tariff schedule's classification into specific and general categories does not override the fundamental requirement that goods must be marketable or capable of being marketed to attract excise duty. The Court noted that the Department's submission was contrary to established precedents, including Bhor Industries, which had already rejected the notion that mere chemical classification suffices to attract duty without marketability.The Court observed that the purpose of specifying goods in the Schedule is twofold: to fix the rate of duty and to identify goods liable to duty. However, even specified goods must meet the marketability test. The Court held that the Tribunal's finding that the product was liable to duty solely because it answered the chemical description under Item 15A was not well-founded.4. Application of Law to Facts and Treatment of Competing Arguments:The appellants demonstrated that the resin solutions were unstable, had a short shelf life, were used in a semi-processed state without further treatment, and were not marketed. The Department's evidence and arguments failed to establish that the products were marketable or capable of being marketed in their intermediate form.The Court gave weight to the chemical expert's opinion and the findings of the Assistant Collector and Collector (Appeals) regarding instability and non-marketable nature of the resin solutions. The Department's reliance on chemical nomenclature and tariff classification was held insufficient to override the fundamental test of marketability.The Court also considered the statutory amendments relating to captively consumed goods and clarified that the presumption of marketability created by the amendments is rebuttable. The appellants successfully rebutted this presumption by showing the resin solutions were not marketable.Conclusions:The Court concluded that the resin solutions at the A-stage (resols) produced by the appellants were not 'goods' liable to excise duty because they were not marketable or capable of being marketed in their intermediate, unstable form. The mere fact that these products answer the chemical description in the tariff schedule does not suffice to attract duty without satisfying the marketability test.The Court allowed the appeals, held that the resin at the A-stage could not be subjected to excise duty, and directed that the appellants were entitled to costs.Significant Holdings:'The provisions of the Act mandate that a finding that the goods are marketable is a prerequisite or 'sine qua non' for the levy of duty.''To become 'goods' an article must be something which can ordinarily come to the market to be bought and sold.''The duty is levied on goods. As the Act does not define goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market.''The test of marketability or capable of being marketed applies even to those goods which are mentioned in the tariff item.''The submission of learned counsel for the Department, therefore, that merely because the intermediate product manufactured by the appellants was resols and it is one of the items mentioned under Item 15A it was exigible to duty ignores the basic and primary test for exigibility of duty.''Even in respect of specified goods it could be established that it was not marketable or capable of being marketed, therefore, no duty was leviable on it.''The Tribunal's finding that once the product manufactured by the appellants answered the chemical description of the product under Tariff Item 15A it was assessable to duty whether it was marketable or not was thus not well founded.'