2003 (2) TMI 65 - SC - Central Excise

Excise duty on unstable intermediate goods stored during manufacturing-marketability test applied; extended limitation u/s11A proviso rejected.

Intermediate products arising during manufacture were alleged to attract excise duty and the revenue invoked the proviso to s.11A on the basis of ... Excise duty is payable on intermediate products - Entitlement to the extended period under Section 11A of the Central Excise and Salt Act, 1944 - Held that:- The law is that in order to be excisable, not only goods must be manufactured i.e. some new product brought into existence, but the goods must be marketable. By marketable it does not mean that the goods must be actually bought and sold in the market. But the goods must be capable of being bought or sold in the market. The law also is that goods which are in the crude or unstable form and which require a further processing before they can be marketed, cannot be considered to be marketable goods merely because they fall within the Schedule to the Excise Act. The Appellants claim that they were under a belief that intermediate products continued to be also exempted as otherwise the price of the final product would go up. The Appellants also claim that they were under a belief that as their intermediate products were crude and in an unstable form and not marketable, the same were not excisable. The Appellant also by their letters dated 21st April, 1987 and 23rd December, 1987 had pointed out that these intermediate products came into existence in the manufacture of final product. The only ground on which it has been held that the extended period was applicable is there was suppression by non-filing of the classification list and that in their letters dated 21st April, 1987 and 23rd December, 1987, it has not been set out that these intermediate products were separated and stored in plastic or tin containers. These are not sufficient grounds for the purpose of invoking the extended period of limitation. It could not be denied that no duty was sought to be levied on the same products manufactured by the sister concern. Therefore it could not be said that the belief of the Appellants was not bona fide. Further the premises of the Appellants were visited on 7th April, 1987. The officers saw that the intermediate products were being temporarily stored in plastic or tin containers. Thereafter by the letter dated 21st of April, 1987, it is pointed out that these intermediate products are being manufactured. There was thus no deliberate act of fraud, collusion, misstatement, suppression or contravention of the Act. Mere fact of not filing of the classification lists is not sufficient to bring into play the extended period of limitation. It is therefore held that the extended period of limitation, under the proviso to Section 11A, was not available. In favour of assesse. Issues Involved:1. Whether excise duty is payable on intermediate products.2. Whether the extended period under Section 11A of the Central Excise and Salt Act, 1944, is applicable.Issue-wise Detailed Analysis:1. Whether excise duty is payable on intermediate products:The appellants manufacture various drugs, and during this process, intermediate products come into existence. The primary question is whether these intermediate products are subject to excise duty. The appellants argued that the intermediate products are in a crude and unstable form, with a shelf-life of only a few hours unless further processed and purified. They also submitted affidavits from traders to show that these products are not marketable.The court reviewed several precedents to establish the law on excisability and marketability of intermediate products:- Union Carbide India Limited v. Union of India and Others: It was held that excise duty is applicable only if the article is manufactured and capable of being sold to a consumer. The burden of proving marketability lies with the department.- Bhor Industries Ltd. v. Collector of Central Excise: It was determined that goods must be known in the market and capable of being sold to be excisable. The department must provide proof of marketability.- Collector of Central Excise, Baroda v. M/s. Ambalal Sarabhai Enterprises (P) Ltd.: The court held that goods with unstable character that are not practically marketable are not excisable.- Union of India v. Delhi Cloth & General Mills Co. Ltd.: The rationale for levying excise duty is that the goods must be a distinct commodity known in common parlance for buying and selling.- Collector of Central Excise, Baroda v. United Phosphorus Ltd.: The court reiterated that the burden of proving marketability is on the department.The court concluded that the law requires goods to be manufactured and marketable to be excisable. Goods in a crude or unstable form requiring further processing before being marketable are not considered marketable goods merely because they fall within the Excise Act's schedule.The court found that the department did not make efforts to ascertain whether the intermediate products were available in the market or if they were the same as those produced by the appellants. The chemical analyser's report was based on a write-up provided by the appellant and lacked independent verification. The court held that the department failed to discharge its burden of proving marketability, and the intermediate products manufactured by the appellants were not established as marketable.2. Whether the extended period under Section 11A of the Central Excise and Salt Act, 1944, is applicable:The appellants contended that the extended period under Section 11A was not available to the Revenue. The court reviewed the law on the subject:- Collector of Central Excise, Hyderabad v. M/s. Chemphar Drugs and Liniments: The court held that the extended period requires a deliberate act of fraud, collusion, misstatement, suppression, or contravention of the Act. Mere inaction or failure is insufficient.- M/s. Padmini Products v. Collector of Central Excise, Bangalore: It was held that mere failure to pay duty or take out a license does not amount to fraud, collusion, misstatement, suppression, or contravention of the Act.- Tamil Nadu Housing Board v. Collector of Central Excise, Madras: The court held that the onus is on the department to prove a deliberate act of fraud, collusion, misstatement, suppression, or contravention of the Act.- Collector of Central Excise v. H.M.M. Limited: The court held that a show cause notice must specifically state the default committed by the assessee.The appellants argued that they were under a bona fide belief that the intermediate products were not excisable, supported by the fact that a sister concern manufacturing identical products was not issued a show cause notice. The court found that the department did not provide sufficient grounds to invoke the extended period of limitation. The mere non-filing of the classification list was not sufficient to invoke the extended period.The court concluded that the extended period of limitation under the proviso to Section 11A was not available. Consequently, both appeals were allowed, and the demands made in the show cause notices were set aside. There was no order as to costs.