2010 (4) TMI 58 - SC - Central Excise

Unvulcanised sandwiched fabric assembly is an intermediate good; Revenue must prove marketability before imposing excise liability

SC held the unvulcanised sandwiched fabric assembly is an intermediate, not an excisable good absent proof of marketability, and placed onus on Revenue to ... Classification of unvulcanised sandwiched fabric assembly as 'goods.' - test of marketability - marketable products fulfilling the requirement of the definition of excisable goods as per Section2(d) - Whether unvulcanised sandwiched fabric assembly produced in the Assessee’s factory and captively consumed can be termed as “goods” and can be classified as “rubberized cotton fabrics” falling under sub-heading number 5905.10 of the schedule to the Central Excise Tariff Act, 1985. HELD THAT:- Vulcanisation of the foot wear takes place only after completing the entire process and then it would be a finished product as a footwear, made available in the market and acquires commercial identity and turns out to be a commercially known product. Suffice it to say that the product in question is used as an intermediate product, goes to make the component for the final product. The burden to show that the product in question is marketed or capable of being bought or sold in the market so as to attract duty is entirely on the Revenue. Reference may be made to the decision of this Court in Union of India vs. Delhi Cloth and General Mills Co.[1997 (5) TMI 49 - SUPREME COURT]. The test of marketability often called 'Vendability test' has been elaborately considered by a constitution Bench Judgment of this Court in Union of India vs. Delhi Cloth and General Mills Company Limited [1962 (10) TMI 1 - SUPREME COURT]. This legal position has been reiterated by this Court in A.P. State Electricity Board vs. Collector of Central Excise, [1994 (2) TMI 56 - SUPREME COURT] and various other decisions, wherein this Court held that the marketability is essentially a question of fact to be decided on the facts of each case and there can be no generalization, and the fact that goods are not in fact marketed is of no relevance and the question whether they are capable of being marketed. Admittedly, the assessee is not marketing the product but still the question is whether the product is capable of being marketed. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. No evidence has been produced by the Revenue to show the product unvulcanised sandwiched fabric as such is capable of being marketed, without further processing. The mere fact that the product in question was entrusted outside for some job work such as stitching is not an indication to show that the product is commercially distinct or marketable product. Without proof of marketability the intermediate product would not be goods much less excisable goods. Such a product is excisable only if it is a complete product having commercial identity capable of being sold to a consumer which has to be established by the Revenue. We are also of the view that no reliance can be placed on the Division Bench Judgment of the Calcutta High Court reported in Union of India (UOI) vs. Bata India Ltd.[1993 (1) TMI 99 - HIGH COURT AT CALCUTTA] since this Court while dismissing SLP(C) filed by the assessee against the above judgment clearly opined that the merits of the case was not being looked into since the operative portion of the judgment was in favour of the assessee herein and hence the question as to whether the product was excisable or not was not decided. Thus, we are inclined to allow this appeal and set aside the order of the Tribunal and quash the show cause notices issued to the assessee since the Revenue had not produced any relevant materials to show the marketability of the product. We are informed that vide Notification No.143/94-CE dated 7.12.94 the product in question stands exempted if captively used for the manufacture of exempted footwear. Allowed as above, directing the Tribunal to dispose of the appeal without delay. Issues Involved:1. Classification of unvulcanised sandwiched fabric assembly as 'goods.'2. Marketability and dutiability of the intermediate product.3. Burden of proof regarding marketability.4. Applicability of central excise duty.5. Validity of show cause notices and penalties imposed.Issue-Wise Detailed Analysis:1. Classification of Unvulcanised Sandwiched Fabric Assembly as 'Goods':The primary question was whether the unvulcanised sandwiched fabric assembly produced by the Assessee and used captively could be classified as 'rubberized cotton fabrics' under sub-heading 5905.10 of the Central Excise Tariff Act, 1985. The Tribunal's Member (Judicial) opined that the product would not attract duty unless proven marketable, while the Member (Technical) disagreed, leading to a final majority decision that the product was excisable.2. Marketability and Dutiability of the Intermediate Product:The Assessee argued that the intermediate product lacked commercial identity and marketability, crucial for dutiability. The Tribunal's majority held the product excisable, but the Supreme Court emphasized that marketability is essential for determining excisability. The Court cited previous judgments, including Union of India vs. Delhi Cloth and General Mills Co., to underline that marketability must be proven by the Revenue.3. Burden of Proof Regarding Marketability:The Court reiterated that the burden of proving marketability lies with the Revenue. The Revenue failed to provide sufficient evidence, relying only on a test report, a handbook, and a company statement. The Court criticized the Tribunal for making suppositions without concrete evidence, as highlighted in Hindustan Ferrado Limited, and emphasized that the Tribunal should not substitute technical knowledge for evidence.4. Applicability of Central Excise Duty:The Supreme Court held that the intermediate product was not marketable in its current form and thus not excisable. The Revenue's failure to demonstrate the product's marketability meant it could not be classified under sub-heading 5905.10 for central excise duty purposes. The Court referenced multiple cases, including Cipla Limited and Gujarat Narmada Valley Fertilisers Corporation, to support its stance on the necessity of marketability for excisability.5. Validity of Show Cause Notices and Penalties Imposed:The Court found the show cause notices and penalties imposed by the Commissioner of Central Excise invalid due to the lack of evidence on marketability. The Assessee's detailed objections and supporting affidavits demonstrated that the product was an intermediary used for captive consumption without commercial identity. Consequently, the Court quashed the show cause notices and set aside the Tribunal's order.Conclusion:The Supreme Court allowed the appeal, set aside the Tribunal's order, and quashed the show cause notices issued to the Assessee. The Court directed the Tribunal to dispose of the appeal without delay, considering the product was exempted from duty if used captively for manufacturing exempted footwear as per Notification No.143/94-CE dated 7.12.94.