Customs, Excise and Gold Tribunal - Calcutta
Bata India Ltd. vs Commissioner Of Central Excise on 24 December, 2001
Equivalent citations: 2002(81)ECC97
ORDER Archana Wadhwa, Member (J)
1. Vide his impugned order the Commissioner of Central Excise, Delhi has confirmed demand of duty of Rs. 89,77,064.00 and has imposed personal penalty of Rs. 1 crore on the appellant. The question involved in the present appeal is as regards the dutiability of unvulcanised sandwitched fabric assembly emerging as an intermediate product in the course of manufacture of the final product of the appellant i.e. rubberised canvas footwear. The duty is for the period 1st April 1990 to 6th December, 1994 raised vide two show cause notices dt. 29.3.1995 (for the period 1.4.1990 to 31.8.1994) and show cause notice dt. 30.3.1995 (for the period 1.9.1994 to 6.12.1994). The duty has been confirmed by treating the said intermediate product as double textured rubberised fabric and by classifying the same under heading 59.05 of the Central Excise Tariff.
2. As per the Revenue inasmuch as the said intermediate excisable product was captively used by the appellant in the manufacture of exempted footwear, the exemption under the provision of Notification No. 217/86-CE, dt. 2.4.1986 was not available. The demand has been raised only upto 6.12.1994 as a specific Notification No. 143/94, dt. 7.12.1994 granting exemption to rubberised textile fabrics falling under heading 59.05, if captively used for manufacture of exempted footwear was issued.
3. Shri S.K. Bagaria, learned Advocate appearing for the appellant submits that for the manufacture of rubber canvas footwear the appellant buys fully manufactured fabric rubbers and chemicals from the market. Rubbers and chemicals are mixed in mixtures. The mixture is warmed at a temperature of 70°C to 80°C immediately before use. This wormed and sticky mixture is put on to three bown calendaring machine where it passes through upper two rollers so as to facilitate its simultaneous spreading in between two layers of fabric. In this way the fabrics get sandwitched with the mixed material. According to the learned Advocate the product is never vulcanised and is in raw crude and elementary stage. In the said stage the fabrics and rubbers/chemicals are not firmly or permanently bound together and are separable. The said in-processed materials have got a short shelf life varying between ten days and four weeks approximately, depending upon climate conditions. During summer the shelf life is much shorter and is hardly about ten days and during winter the shelf life is slightly longer and can be upto about four weeks. After cutting and stitching, the said in-process materials are used as shoe uppers in the footwear. Such use is possible only when the said materials are stretchable and in a raw condition. The said materials can be assembled by stretching on Aluminium lasts only if these are in a soft and weak plastic like condition. The said fabrics are also sometimes sent to the job workers for stitching purposes. The appellant has to ensure that such job workers are located nearabout its factory in Faridabad itself inasmuch as the said in process materials have to be necessarily brought back to the appellant's factory and used within their shelf life itself as early as possible and any delay in this regard will render the said in-process materials totally useless. If there is any delay beyond the shelf life, the said in-process materials will get scorched rendering the same totally unfit for any further use and in that event the same will have to be discarded as waste.
3.1 Shri Bagaria submits that vulcanisation never takes place of the said in-process materials. Vulcanisation takes place only of the complete footwear. For such vulcanisation purposes, the assembled footwear built on aluminium lasts are kept on racks which are pushed into autoclaves which are vulcanising chambers. In the said vulcanising chambers, the footwears are vulcanised with heat of about 140°C and pressure of 3 to 3.5 atm. for about one hour. It is only at the aforesaid temperature of about 140oC and pressure of about 3 to 3.5 atm. that the complete footwear including its uppers made of fabrics sand witched with friction get vulcanised. Melting point of sulphur is 119oC and the said melting point is achieved only during vulcanisation of the complete footwear inside the vulcansing chambers.
3.2 Based upon the above facts, it is the submission of the learned Advocate that in view of the short shelf life and in view of the raw. crude and elementary condition of the product, it is not possible or feasible to sell or market the said fabrics. He submits that the appellant had produced a number of evidences in the shape of experts' opinion before the adjudicating authority to stress upon their plea that the product as emerging in their factory is not marketable. He drew the attention of the Bench to the following experts' opinion:--
(a) Certificate dt. 13.2.1994 from Footwear Design & Development Institute, Ministry of Commerce, Government of India.
(b) Affidavit of well-known Rubber & Plastic Technologist, Mr. Somnath Chakravarty, M.Sc, Ph. D., FPRI, FICS FIC.
(c) Affidavit of Mr. Parvati Pada Mukherjee. Rubber & Plastic Technologist and having experience of about 50 years in Rubber & Plastic Industry.
(d) Affidavit of Mr. Maharaj Krishan Khanna, the appellant's Production Manager.
Shri Bagaria submits that as against the above evidence adduced by the appellant, the department has not produced any evidence to show the marketability of the product in question. He submits that the appellant having taken a definite stand right from the beginning about the non-marketability of the product, the Revenue should have produced some evidence to counter the appellants' stand especially when the onus to prove the marketability rests on the Revenue. He submits that the show cause notice refers to one isolated sentence book up from the book named 'SEP Handbook as Rubber Projects, Technology and Product Formulary', wherein it was stated that such type of fabric is used for considerable quantities for making raincoats and canvas shoes. He submits that the said uses were mentioned of 'rubber fabric' and in the same very book it was clearly stated that vulcanisation is a necessary part of the manufacturing process of rubberised fabric. He submits that the said line reproduced in the show cause notice has to be read in the overall context of the subject. He submits that a number of samples of the said in-processes material were drawn by the department, and in all the said samples the materials were described as unvulcanised. As such submits the learned Advocate that the goods in question if un-vulcanised, unmarketable and having short shelf life cannot be held to be excisable goods.
3.3 Assailing the order of the Commissioner, learned Advocate submits that the adjudicating authority has wrongly given a finding that the vulcanisation is carried out at the stage of emergence of rubberised fabric itself and not subsequently when the said fabric is used as upper of the footwear. He submits that the finding is based upon the adjudicating authority's own observations and was never a part of the show cause notice. He submits that no vulcanisation can be said to have taken place at a temperature of 70oC to 80oC for a period of 10 to 15 minutes which process is undertaken by the appellant only for warming. He submits that if mixed material was vulcanised at the stage of warming it will be simply impossible either to get any bonding or any shape at the subsequent stage and vulcanised material can never be spread into the textile fabrics in between two layers.
3.4 Shri Bagaria has also drawn our attention to the various authoritative books and literatures on the subject in support of his arguments that vulcanisation is necessary to give stability and resultant marketability to the product. It would be beneficial to reproduce from the various books, as quoted by the learned Advocate at this stage.
(a) The Vanderbilt Rubber Handbook published by P.T. Vanderbit Company Inc. Norwalk All of the processed elastomer coated fabric, to be made into a finished material, must go through the cycle of curing. The vulcanization is necessary to give the proper physical properties to the rubber compound. Curing, or vulcanizing, is generally accomplished by festooning in a dry heat chamber under specific conditions of time of temperature. These conditions are adjusted to the rubber compound and the specific requirements of the finished goods. (Pg. 5 of Suppl. P.B.)
(b) Concise Encyclopedia of Polymer Science and Engineering:
Useful rubber articles, such as tires and mechanical goods, cannot be made without vulcanisation. Unvulcanized rubber is generally not very strong, does not maintain its shape after large deformation, and can be very sticky; it has about the same consistency as chewing gum". (Pg. 7 of Suppl. P.B.) The term 'vulcanization' is generally applied to rubber or elastomeric materials. These materials forcibly retract approximately to their original shape after the large mechanically imposed deformation. Vulcanization can be defined as a process that increases the retractive force and reduces the amount of permanent deformation remaining after removal of the deforming force. Thus, vulcanization increases elasticity while it decreases plasticity. It is generally accomplished by the formation of a cross-linked molecular network" (Pg. 7 of Suppl. P.B.)
(c) McGraw-Hill Encyclopedia of Science & Technology:
In the crude state, natural and synthetic rubbers posses certain physical properties which must be modified to obtain useful and products. The raw or unmodified forms are weak and adhesive. They lose their elasticity with use, change markedly in physical properties with temperature, and are degraded by air and sunight. Consequently, it is necessary to transform the crude rubbers by compounding and vulcanization procedures into products which can better fulfill a specific function.
Curatives and vulcanization. After the addition of curing or vulcanizing agents to rubber, the application of heat causes cross-linking, yielding a durable product by binding the long chains together." (Pg. 12 of Suppl. P.B.)
(d) Hawley's Condensed Chemical Dictionary:
Vulcanization was discovered in 1846 by Charles Goodyear in the US and simultaneously by Thomas Hancock in England. Its overall effect is to convert rubber hydrocarbon from a soft, tacky, thermoplastic to a strong, temperature-stable thermoset having unique elastic modulus and yield properties" (Pg. 24 of Suppl. P.B.)
(e) SBP Handbook of Rubber Projects, Technology and Product Formulary:
Vulcanisation is the term applied to the process whereby raw rubber and the like materials are treated with sulphur or certain other chemicals to increase their strength, durability and fitness for commercial use.
3.5 Learned Advocate submits that the issue as regards the marketability of the product in question is covered by the earlier decision of the Calcutta and Delhi High Court in the appellants' own cases in respect of identical products. The Calcutta High Court vide its order dt. 23.7.1979 appearing at pages 315 to 330 of the Paper Book has held that the cotton fabrics impregnated with soft rubber compound and in unvulcanised condition are not marketable. Similarly the Hon'ble High Court at Delhi vide its order dt. 20.8.1973 in CW No. 606/70 appearing at pages 331 to 334 of the appellants' paper book has directed the Union of India to refund the amount collected by the Revenue as central excise duty in respect of friction cloth used in the process of manufacture of footwear inasmuch as the matter was not opposed by the excise authorities.
3.6 Shri Bagaria also relied upon the following judgments in support of his contention that the unvulcanised fabrics quoted with rubber compound emerging at an intermediate stage cannot be held to be dutiable.
(i) --CCE v. National Insulated Cable Co. (I) Ltd.;
(ii) --BMF Beltings Ltd. v. Union of India,
(iii) --Brammer v. Link Belting (I) Ltd. v. ACCE;
(iv) --CCE v. Bharat Electronics & Plastics;
(v) 2000 (39) RLT 895--CCE v. K.K. Rubber Co. Put. Ltd.;
(vi) --CCE v. United Phosphorus Ltd. (SC);
(vii) --Nirlon Synthetic Fibres & Chemicals v. CCE (SC);
(viii) --Moti Laminates Pvt. Ltd. v. CCE (SC);
(ix) --India Cable Co. Ltd. v. CCE (SC);
(x) --CCE v. Ambalal Sarabhai Enterprises (SC);
(xi) 2000 (41) RLT 159--Freedom Rubber Ltd. v. CCE;
(xii) --Chloride Indus. Ltd. v. CCE;
(xiii) --Diamond Rubber Mills v. Suprnt. CE;
(xiv) 1999 (33) RLT 143--CCE v. Asian Rubber & Plastics Indus.;
(xv) 1999 (84) ECR 446--CCE v. Saghay Rubber Products.
3.7 Shri Bagaria also referred to a number of decisions to show that the burden to prove marketability and dutiability is on the Revenue and the said burden has not been discharged by them inspite of the appellants' having clarified their stand right from the beginning that the said product is not marketable. He submits that there is not even an iota of evidence to show that the unvulcanised sandwitched fabric are capable of being marketed or the same are treated or regarded as rubberised fabric either commercially or technically.
3.8 Shri Bagaria further submits that the Commissioner discarded all the judgments relied upon by him by referring to Calcutta High Court's judgment as , against which the SLP filed by them was dismissed by the Hon'ble Supreme Court. He submits that though the observations of the Calcutta High Court in the above order, as regards dutialibity of cotton and artificial silk fabrics chemically treated were against the appellant, nevertheless the operative portion of the order dismissed the appeal filed by the Revenue. When the said order was challenged before the Hon'ble Supreme Court by way of filing a special leave petition by the appellant, the Hon'ble Supreme Court was pleased to take a view that since the operative portion of the judgments of the Calcutta High Court was in favour of the appellant company, it was unnecessary to decide the points raised in the special leave petition. As such the observation of the adjudicating authority that the Calcutta High Court's order stands confirmed by the Hon'ble Supreme Court is not correct inasmuch as there was no view expressed by the Hon'ble Supreme Court on the excisability of the product.
3.9 Shri Bagaria also submitted that the benefit of exemption Notification No. 5/87-CE, in respect of Gussed brand of footwear was denied by the adjudicating authority in a most arbitrary manner by alleging that there is a serious doubt, whether in the said rubberised fabrics, the rubber content pre-dominated by weight. He submits that the appellant had filed copies of production guides relating to the said footwear, copies of quality specification, copies of certificates from the suppliers of the fabrics, copies of costs cards, copies of daily production report etc., to show that so called rubberised textile fabric prepared for being used in manufacture of Gussed brand of footwear never exceeded more than 500 gms., per square metre in weight and rubber always pre-dominated by weight in the said fabrics. They also made submission as regards the report of chemical examiner and filed an affidavit of Shri M.K. Khana. In case of doubt, a request was made for re-testing of the samples. All these factors were ignored by the Commissioner.
3.10 Shri Bagaria also assailed the order of the Commissioner on the point of limitation. He submits that the entire facts were known to the Revenue and there is no ground for invoking the longer period. He submits that the dispute about the fabric was going on before the various High Courts including the Hon'ble High Court of Calcutta who gave the verdicts in their favour and in such circumstances the Revenue cannot hold that the appellants suppressed any information from the department with an intention to evade duty. Reliance in this regard has been placed on number of decisions of the Hon'ble Supreme Court including the decision in the case of National Radio and Electronics Co. Ltd. 2000 (36) RLT 363. Imposition of penalty amount of Rs. 1 crore has also been challenged by the learned Advocate by submitting that the same was neither justified nor warranted.
4. Countering the arguments of the appellants Shri V.K. Chaturvedi, learned SDR submitted that the Commissioner has passed a detailed order based upon the factual position. He has submitted a brief note on the following points:--
Vulcanization: Vulcanization is a process in which following changes occur:
(i) The long chain of rubber molecules become cross linked by the reactions with the vulcanization agent to form three dimensional structures. This reaction transforms the soft weak plastic like material into a strong elastic product.
(ii) The rubber looses its tackiness and becomes insoluble in solvents and is more resistant to deterioration normally caused by heat, light, and aging process.
There are different methods for vulcanization of rubber. However, the issue before the Commissioner was not the vulcanization of textiles and in any case textiles cannot be vulcanized. The vulcanization of rubber is a complex chemical process. The certificates/documents submitted by the appellants do not speak at all whether such a chemical reaction has occurred or not. The affidavits of two rubber technologists namely S/Sh. Somnath Chakarvarti and P.P. Mukherji are based only on physical examination of the impugned goods; and no chemical examination appears to have been undertaken by these experts. Commissioner, after seeing the sample, found that the impugned goods appeared very stable and there was nothing unstable, transient about the goods. (The sample of the goods being used are enclosed herewith. The sample produced before Commissioner during adjudication proceedings is also enclosed). It is also pointed out that vulcanization as a chemical process is only associated with rubber compound and has nothing to do with fabrics.
SHORT SHELF LIFE:
One of the pleas advanced by the appellant is that the product has a short shelf life and, therefore, cannot be called goods. It may be seen that even by party's own admission these goods were capable of being stored for a period of two to four weeks, two weeks during summer and four weeks during winter. Periods of two weeks and four weeks cannot be considered to be short self life. It is also admitted fact that the goods were taken out of the appellants' factory to job workers for stitching etc. Some of the important decisions of Tribunals on this topic are worth mention:
In the case of Indian Oxygen Ltd. v. CCE Bhuwneshwar 1997 (87) ELT 557 (T), it was held in para 2.4 that a short shelf life was immaterial. Para 2.4 is reproduced for ease of reference; "2.4 We have carefully considered the pleas advanced from both sides. We agree with the adjudicating authority that a product different from its inputs (Jute stick powder, bags and liquid oxygen), namely Liquid Oxygen Explosive (LOX) has come into existence. Therefore, manufacture of goods has taken place. The fact that the goods are actually being marketed as LOX is clearly on record in view of the invoices being issued by the appellants to that effect. In the face of this evidence, appellant's plea that the goods (LOX) have no shelf life is not material to the excisability of the goods. In the case of CEAT tyres, relied upon by the appellants, argument of 'dip solution' having no shelf-life was taken as indicative of non-marketable character of those goods i.e., 'dip solution' since there was no actual marketing of those goods and these were being used only captivity. In the present case, LOX is being marketed by the appellant. It cannot, therefore, be held that the goods are not marketable. We, therefore, hold that the goods are excisable under Tariff sub-heading 36.02.
In another case in Collector of Central Excise Cochin v. Premier Tyre Ltd., , it was held by the Tribunal that Dipping of unprocessed tyre cord fabrics in resorcinol formaldehyde latex solution and drying by heat setting amounts to manufacture as a new, complete and independent product comes into existence which is utilized in the manufacture of tyres.
In yet another case of Amara Raja Battery v. CCE Guntur , it was held that lead oxide, capable of being kept in SILOS for about three weeks was goods and, therefore, excisable. Para 12 of the said order is reproduced hereunder for ease of reference.
12. There is no indication any where to say other than that except on heating it decomposes that it is unstable in any way. Going by the above, we are of the view that the product as manufactured by the appellants is a stable compound and, therefore, it could be held to be the goods irrespective of the fact whether the appellants sold the goods in the market or used themselves and it has a distinct character and use and just because the use is for the captive consumption of the goods would not make any difference so far as the excise levy is concerned.
From the above it is clear that the product in dispute does not have very short shelf life so as to be taken out of the category of goods. It has a reasonably long shelf life. If kept in a cold storage or similar other place, it can be stored for long period of time. It can be taken outside the factory for further processing like cutting stitching, etc. EMERGENCE OF NEW PRODUCT It has been held time and again by Supreme Court and other judicial authority that what is necessary for the process of manufacture is emergence of a new product. Admittedly the inputs here are textile fabrics having sandwitch of rubber compound and mixtures in between. The said lamination is passed between roller heated at 70 degree to 80 degree C. What emerges out of the roller is rubberized fabrics having rubber between two layers of textiles. The inputs and outputs are entirely different things. The commodity that emerges is a distinct commodity having its own identity, name and specific use and is totally different from the raw materials. The excisabihty of such fabrics is, therefore, in no doubt.
MARKETABILITY It has been held that marketability is a must for anything to qualify as goods. Marketability does not imply the actual sale and purchase but ability of being bought and sold in market. The product in question is admittedly taken out for job work outside the factory. The same after job work is brought back by the appellant for further use. That in itself is a good proof about the marketability of the product. In case a canvas shoe manufacturer does not have the machinery for manufacture of this double textured fabrics, it can always buy their product from Bata or any other manufacturer. In view of that marketability of the product is established.
NATURAL JUSTICE Appellants have alleged denial of natural justice on account of certain manufacturing details of these goods as described by the Commissioner in his order. They have specifically objected to the finding that a rubber sheet/strip emerges in the process which is mechanically placed between the two fabrics layers as according to them nothing of this sort happens at all. However, the production of the said double textured fabrics i.e. the main issue of the case has not been challenged. These manufacturing details even if they happen to be slightly different are indeed not material and much ado should not be made on account of that. What is of prime importance is that double textured fabrics does emerge as a result of these processes which the Department considers as excisable. It is also stated that the manufacturing details as given by Sh. Manhar Jagota Manager M/s. BIL have not been refuted before the Commissioner. And from the manufacturing diagram supplied by them it is seen that the rubber compound is applied between two layers of fabrics by way of rollers as a thin sheet or film. Now whether it is called a sheet or a film or just a layer is immaterial as issue is whether or not the fabrics which thus result are excisable or not and emergence of a rubber film or strip or sheet etc. is a non-issue.
As regards Commissioner's reliance on the Calcutta High Court judgment in appellant's own case as cited in , suffice it to say that the Commissioner has already elaborated his reasons for such reliance in the order itself. This judgment squarely covers the issue in hand and is, therefore, most suitable to understand the present issue. Also as stated by the Commissioner, this judgment has been accepted by the Supreme Court also. Strangely the appellants have also alleged violation of natural justice on this count which appears rather far-fetched.
CLAIM OF EXEMPTION UNDER 5/87-CE Internal document referred to by the party will have no relevance in view of clear test report of the chemical examiner. It may be seen that the test report in respect of "gusset" brand of footwear can be seen on pages 163, 171, 179, 187 of the main paper book. It may be seen that in all the test report it is clear that there is a predominance of textiles. There was no justification for granting the benefit of that notification as rubber was not predominating CLASSIFICATION Once it is established that the impugned item is "goods", the same is to be classified under the Central Excise Tariff. The best possible classification occurs under the sub-heading 5905.10 of the CETA, 1985.
LIMITATION This is a fit case for invokation of proviso to Section 11A of the Central Excise Act. Even though there was a specific High Court Judgment of Hon'ble High Court of Calcutta the party did not declare manufacture of these rubberized fabrics in their statutory record or declaration. Some of the relevant case laws on the subject are indicated below:
1. Century Cement v. CCE.
2. CCE v. Demons Pultro teknic.
3. S.P. Gupta & Sons v. Union of India.
4. Gujarat Ambuja v. CCE.
5. Leisureland Pvt. Ltd. v. CCE.
5. In their rejoinder, the appellants submit that the issue is not about vulcanisation of rubber but is as to whether any rubberised textile fabrics can be manufactured or come into existence as a commodity without vulcanisation. They submit that it is clear from the various technical books that without vulcanisation the product is not stable. He submits that the affidavits of the technical experts were given after thorough examination of the sample and the Commissioner was the adjudicating authority and not a technical expert or rubber technologist. As such there could be no scope for the Commissioner to decide about dutiability or marketability after seeing the sample on the basis of his own personal notions. Relying upon the Supreme Court's decision in the case of Hindusthan Ferodo Ltd. v. CCE 1997 (89) ELT 16, he submits that the Revenue has to establish marketability as a fact and the personal opinion of the Commissioner could not be made the basis for deciding the marketability. As regards the shelf life, he admits that the said intermediate material was being sent to the job-workers, but the same was for a very short period and within the shelf life of the product. The stitching was always done by nearby job-workers, He submits that the reliance by the respondents on CEAT's decision (Indian Oxygen Ltd.) is misconceived inasmuch as there was evidence of the goods in question being actually marketed by the appellant. Similarly reference to the decision in the case of Premier Tyres Ltd. , by the learned SDR was not appropriate inasmuch as issue relating to marketability of any goods was neither raised, nor decided. Similarly in the case of Amara Raja Batteries Ltd. , it was specifically recorded that the Lead Oxide was being sold by the assessees. He submits that no new product emerges in their case and the process of manufacture as detailed by them has not been rebutted by the learned SDR.
6. We have considered the submissions made from both the sides and have gone through the impugned order-in-original.
7. The issue required to be decided in the present appeal is as to whether the unvulcanised sandwitched fabric assembly produced in the appellants' factory and captively consumed by them can be called as 'goods' and can be classified as rubberised cotton fabrics falling under Chapter 59 of CETA, 1985. The sum and substance of the appellants' submission is that the said item come into existence at an intermediate stage and being in unvulcanised stage and having short shelf life is incapable of being marketed. For this proposition, the appellants have referred to a number of decisions of the Tribunal, various High Courts as also of the Hon'ble Supreme Court. However, we find that as against the said decisions the adjudicating authority has relied upon Calcutta High Court's decision in the appellants' own case as confirmed by the Hon'ble Supreme Court inasmuch as the appeal filed by M/s. Bata India against the said decision of the Hon'ble High Court, as was dismissed. So, first of all we would discuss the applicability of the said decision of the Hon'ble Calcutta High Court.
8. The Hon'ble Calcutta High Court, on an appeal filed by Union of India against the order of the lower authorities held Here fit sheets, Thermo plastic sheets and Celluloid sheets made from cotton and silk fabrics for use in footwear, as excisable goods. It is seen on a reading of the said decision of the Calcutta High Court that though the observations as contained in the said judgment were against M/s. Bata India Ltd., the operative portion of the said decision rejected the appeal filed by the Revenue. Vide para 32 of the said judgment, the Hon'ble High Court has held that the three types of sheets are liable to levy of duty but in para 33 of the said judgment it was held--"accordingly the appeal fails". It may be clarified here that the appeal was filed by Union of India. The learned Commissioner in his impugned order has observed that M/s. Bala India Ltd. filed an appeal against the above order which was dismissed by the Hon'ble Supreme Court, as reported in Volume 68 of Excise Law Times at page A-158. The said report only reports about the dismissal of Special Leave Petition filed by M/s. Bata India Ltd., by the Hon'ble Supreme Court. However, a copy of the said dismissal order of the Hon'ble Supreme Court has been placed on record by the appellants. The same reads as follows:--
In view of the fact that the operative part of the impugned judgment is in favour of the petitioner, we consider it unnecessary in this case to examine the merits of the points raised in the Special Leave Petition challenging the reason of the High Court, which, according to the learned Counsel for the petitioner are against the petitioner. The Special Leave Petition is dismissed for this reason.
A reading of the above decision shows that the Hon'ble Supreme Court did not dismiss the appeal of M/s. Bata India Ltd., on merits, but on the other hand that the same was dismissed on the ground that the operative portion was in favour of M/s. Bata India Ltd., and as such there was no cause for grievance. As such it cannot be said that the Calcutta High Court's decision, which was in favour of the appellants inspite of the observations made against them in the body of the judgment, was upheld by the Hon'ble Supreme Court. As such we find that the reliance on the same by the adjudicating authority is not appropriate.
9. As against the above decision the appellants have referred to a number of other decisions. We will discuss the same in the succeeding paragraphs. It is seen that right from the beginning it has been the appellants' stand that the so called in-process material emerging at an intermediate stage is not marketable commodity inasmuch as the same is incapable of being ordinarily brought to the market on account of its short shelf life. This stand of the appellant has not been rebutted by the Revenue by producing any evidence on record to show that the goods in question are capable of being marketed. On the other hand, we find that the Commissioner has relied upon the fact that such rubberised fabrics are being sent by the appellant to their job workers for further stitching, which fact proves the marketability of the goods in question. The appellants have explained that the shelf life of the so called rubberised fabric varies from 7 days to 4 weeks depending upon the weather conditions and keeping this view in mind they always chose their job workers which are situated nearby. For an item to be vandiable, it is necessary that the same should have sufficiently long shelf life so as to enable the same to come to the market for being bought and sold in the ordinary course of their business. It is well settled law that the onus to prove the marketability is upon the Revenue, who have failed to discharge the same in the instant case.
10. It is also seen that the appellants have strongly contended that the fabric in question after the mixture is spread on the same is not vulcanised, whereas the Commissioner has observed that the rubber mixture, before being spread on the fabric was vulcanised. Apart from the fact that this allegation was never made in the show cause notice so as to give an opportunity to the appellant to rebut the same, we find that the same is based upon the personal opinion of the adjudicating authority without the support of any technical literature or expert opinion as against the technical literature produced by the appellant and a definite stand taken by them that vulcanisation only takes place at the final stage of the complete footwear. It is seen that it is not the excisability of the rubber, which is in question. On the other hand, the product which is being sought to be charged to excise duty is the fabric duly sandwitched with the rubber compound. There is nothing on record to show that the vulcanisation of the sandwitched fabric has taken place. The appellants' contention that the vulcanisation only takes place of the complete footwear, when the same are heated at a high temperature and high pressure has not been countered by the Revenue. However, we consider that the discussion on vulcanisation may be irrelevant and the dispute can be settled on the basis of the marketability of the product in question. Accordingly we proceed to discuss the various case laws relied upon by the appellants. The Hon'ble Calcutta High Court in the appellants' own case has rejected the department's stand that cotton fabrics impregnated with soft rubber compound and in unvulcanised condition were excisable as rubberised fabric on the ground that the same were not marketable. Similarly, the Hon'ble Delhi High Court in the appellants' case is held accordingly.
11. In the case of CCE, Calcutta-II v. National Insulated Cable Co. of India Ltd. , has held that cotton fabric quoted with rubber solution and vulcanised and cured after being wrapped around cables cannot be held to be dutiable.
12. In the case of CCE, Delhi v. K.K. Rubber Co. Pvt. Ltd. , rubberised cotton fabrics called friction cloth captively consumed in manufacture of transmission belting and having no market were held not liable to excise duty.
13. In BMF Beltings Ltd. v. Union of India , the Hon'ble Andhra Pradesh High Court has observed that if the product in question is not generally marketed and is not known in the market as a product by itself which can be bought and sold across the counter in the open market then it does not come within the category of the 'goods' as envisaged under Section 3. By observing so the Hon'ble High Court has held that the unvulcanised friction cloth used in manufacture of belts not capable of being generally marketed cannot be held to be goods.
14. The Hon'ble Bombay High Court in the case of Brammer v. Link Belting India Ltd. and Anr. has held that application of rubber compound to cotton fabrics is only an intermediate stage and does not amount to manufacture of cotton fabrics rubberised and as such no duty can be levied on the same. The Hon'ble High Court has rejected the enquiries made by the Inspector of Central Excise relating to marketability of vulcanised rubber which reveal that the product could be marketed, as here say evidence and without having any basis.
15. The Tribunal in the case of CCE v. Bharat Electronics and Plastics has held that rubber quoted fabrics emerging an intermediate product in the course of manufacture of friction tapes obtained by quoting of grey cotton fabrics with rubber, but without any vulcanisation process, are not liable to duty being not marketable.
16. To the same effect is the decision of Eastern Bench of the Tribunal in the case of Chloride Indus. Ltd. v. CCE, Calcutta . By taking note of the various decisions of the Supreme Court that the burden to prove marketability of the goods is on the Revenue. The Tribunal has observed that there was utter lack of evidence from the department about the marketability of the goods on which the Revenue wants to levy the duty.
17. We find that the Hon'ble Allahabad High Court in the case of Diamond Rubber Ltd. v. Suprt. of Central Excise and Ors. held that vulcanised sheets (rubberised cotton fabrics) are not independently excisable at intermediate stage inasmuch as the same are generally not marketable. The Hon'ble High Court observed that it is now settled law that before excise duty can be levied, the goods brought into existence must be goods which may be bought and sold in the market. In this case since the vulcanised sheets sought to be made excisable captively for further manufacture of the belts is not known to the trade and is not bought or sold and are not marketable. As such, it cannot be termed as goods as contemplated in section 3 of the Central Excises Act. It is noted here that the goods in question (sic) before the Hon'ble Allahabad High Court were vulcanised sheets and as such inspite of their vulcanisation, they were held to be not goods on account of their un-marketability.
18. Similarly in the case of CCE, Chandigarh v. Asian Rubber and Plastics Indus. 1999 (33) RLT 143 (CEGAT), friction cloth/rubberised textile fabric arising at intermediate stage in manufacture of rubber belts was held to be non-excisable inasmuch as no evidence relating to marketability of the same was produced by the Revenue.
19. The appellants have further relied upon the Tribunal's order in the case of CCE, Madurai v. Saghay Rubber Products 1999 (84) ECR 446 (T), holding rubberised cotton fabrics arising at an intermediate stage as not liable to duty on account of its non-marketability.
20. We also take note of the Hon'ble Supreme Court's decision in the case of CCE, Baroda United Phosphorous Ltd. 2000 (117) ELT52F, (SC). By taking note of the earlier decisions of the Apex Court in the case of Bhor Indus. Ltd. . Ambalal Sarabhai Enterprises--: : Moti Laminates Put. Ltd. , it has been held that no product is goods unless shown to be marketable by the department. Mere specification in the dictionary or Central Excise Tariff and draw back rate schedule is of no consequence. The Hon'ble Supreme Court in the case of Nirlon Synthetic Fabrics Ltd. has again stressed the criteria of marketability of a product for its dutiability and as again held that the onus to prove marketability is upon the Revenue, which is required to be discharged by production of evidence.
21. We also take note of the Hon'ble Supreme Court's decision in the case of Hindusthan Petroleum Corporation Ltd. v. Union of India , laying down that the burden is on the department to prove marketability of the product which they want to charge to duty. Duty not leviable if department fails to prove so. Similarly in the case of Union of India v. Darbare Nylons , the Hon'ble Apex Court has again held that burden of proof is on the taxing authorities to show that a particular item is taxable in the manner claimed by them. Mere assertion is of no avail. Taxing authorities to lay evidence especially when claim of the assessee supported by trade enquiries and the affidavits of the persons dealing with the subject goods.
The gist of the decisions of the Hon'ble Supreme Court referred supra is that the capability of the product to be marketed is essential pre-condition of levying the same to duty of excise and the onus to prove so lies upon the Revenue. The appellants' definite stand right from the beginning has been that the said product on account of its short shelf life is not marketable. The Revenue has not produced any concrete and positive evidence to rebut the above stand of the appellant by showing that the product is capable of being sold through the market shelfs. The mere factum of the appellant sending the same to their job-workers and bringing it back within the short shelf life of the fabric cannot lay credence to the Revenue's stand that the marketability of the same stands proved. An examination of the various other decisions detailed above show that the Revenue in all those cases have also failed to produce the evidence of marketability of the rubberised cotton fabrics, more or less alike to the product in question, in which situation the product was held to be non-excisable. We find that the Hon'ble Supreme Court in the case of Hindusthan Ferodo Ltd. v. CCE 1997 (89) ELT 16 has observed as under in para 4 of the judgment:
4. It is not the function of the Tribunal to enter into the arena and make suppositions that are tantamount to the evidence that a party before it has failed to lead. Other than supposition, there is no material on record that suggests that a small scale or medium scale manufacturer of brake linings and clutch facings would be interested in buying" the said rings or that they are marketable at all. As to the brittleness of the said rings, it was for the Revenue to demonstrate that the appellant's averment in this behalf was incorrect and not for the Tribunal to assess their brittleness for itself. Articles in question in appeal are shown to the Tribunal to enable the Tribunal to comprehend that it is that it is dealing with. It is not an invitation to the Tribunal to give its opinion thereon, brushing aside the evidence before it. The technical knowledge of the Members of the Tribunal makes for better appreciation of the record and not its substitution.
As such in the absence of any evidence by the Revenue, the observations of the Commissioner that he has seen the product and his findings based upon the same are not relevant, especially when the appellants have produced on record the technical evidence and the expert opinions to show that the goods are Mot marketable on account of their instability. The evidences produced by the appellant by the experts relating to marketability of the product have not been rebutted by the Revenue. As such we hold that the product in question has not been proved to be marketable and hence the same is not excisable.
22. Before we part we would like to mention that most of the judgments holding rubberised textile fabric or friction cloth as non-excisable relied upon the decision of the Punjab & Haryana High Court in the case of Punjab Rubber & Allied Indus. On an appeal filed by Union of India and others against the decision of the Punjab & Haryana High Court, the same was allowed by the Hon'ble Supreme Court as reported in 1997 (19) RLT 359 (SC). As such a doubt about the applicability of the earlier decisions of the Tribunal or of the various High Courts as regards the excisability of the friction cloth arose in our minds. However, we find that Subsequently the said decision in the case of Punjab Rubber & Allied Indus, was taken note of by the Hon'ble Supreme Court in another appeal of the Revenue in the case of CCE, Delhi v. K.K. Rubber Co. Pvt. Ltd. 2000 (120) ELT 28 (SC). It was observed by the Court that the decision of Punjab & Haryana High Court in the case of Punjab Rubber and Allied Indus., was reversed on the technical ground, namely, that in that case the High Court disposing the writ petition has wrongly assumed that no contention was raised by the department as to the marketability of the commodity and it was on that count the Supreme Court allowed the appeal. Para 3 of the said judgment reads as follows:--
3. "It is true that in the judgment of this Court in Union of India v. Punjab Rubber and Allied Industries that Court held that the High Court in that ease went on the wrong assumption that the question of marketability of the commodity was not in issue. This Court pointed out that the High Court overlooked the fact that 'it was the Department's contention that the intermediary product was a marketable commodity. It was on that ground that the appeal was allowed and the writ petition was dismissed. It is clear that this Court did not give any independent finding whether the said intermediate product was marketable or not.
After observing as above, the Hon'ble Supreme Court remanded the matter on the ground that there was no independent finding on the question of marketability. However, as in the instant case we have already given a finding about the failure of the Revenue to produce any evidence about the marketability of the product in question as against the appellants' clear and definite stand, the goods have to be held as non-excisable. We order accordingly.
23. Inasmuch as the issue on merits has been decided in favour of the appellants we are not giving any findings on the alternative issues of applicability of notification or on the point of limitation.
Lajja Ram, Member (J)
24. With due respects to the Member (Judicial), I record separate order as under-- The facts of the case and the submissions made by both the sides, have been summarised in the order proposed by the Member (Judicial) and are not being repeated.
25. The issue for consideration in this appeal filed by M/s. Bata India Ltd. (hereinafter refer to as 'M/s. Bata'), is the dutiability and marketability of the product referred to in the show cause notice dated 29.3.1995, as double textured fabric (para 17) and in the show cause notice dated 30.3.1995 as rubberised fabric (internal page 4). For obtaining the said product, a thin layer of rubber was sandwitched between two sheets of cotton fabrics. Shri Manhar Jagota, Manager--Supply & Transport, looking after all matters relating to central excise in the appellants' company, in his statement dated 16.6.1994, recorded under Section 14 of the Central Excise Act, referred to the product in question as combined/laminated fabric He explained the process of manufacture as under--
The manufacturing process of combined/laminated fabric involves the preparation of a rubber compound by mixing inter alia rubber with various chemicals and solvent oils in a specific ratio in the power operated mixers and then this rubber compound known as friction mixture is applied through a three bowl calendering machine on two textile fabrics in running length so as to obtain laminated/combined fabric which are simultaneously stuck together in the same machine resulting in a thin layer of rubber mixture sandwitched between the two fabrics", (refer page 114 of the paper book).
26. It was described that the above process generated tensile strength, elasticity, waterproofness and abrasion resistance to the product. It was for making the uppers for canvas shoes. The product so obtained was cut into required shape and sizes which were stitched to obtain the uppers (refer page 115 of the paper book).
27. About shelf life, the Manager--Supply & Transport had stated as under--
The said upper material is stable enough to have a shelf life of maximum four weeks", (refer page 115 of the paper book).
28. The material so obtained after passing through the process as described above, was cut in desired shape and size to make out uppers for the canvas shoes. Cut uppers made out of the said processed material were used as parts of canvas shoes in the factory of the appellants after stitching. Such cut uppers were also sent to outside job workers for stitching. The expected duration of processing/manufacturing has been shown in the challans for movement of excisable goods under Rule 57-F(2) of the Central Excise Rules as three to four weeks (refer pages 121 to 124 of the paper book).
29. Shoe uppers is a known commodity and is traded in national and international markets. The beauty and utility of the shoes in no small measure depend upon the uppers. For a number of well known foreign brands, the uppers are regularly imported in the country. The rubberised cotton fabrics out of which the uppers are cut is a known commodity for the purpose of central excise. Under Notification No. 5/87-CE, dt. 15.1.1987, rubberised textile fabrics fall under Heading No. 59.05 of the Central Excise Tariff which did not weight more than 1500 grams per square metre and in which rubber predominated by weight, enjoyed exemption from central excise duty. This exemption remained valid upto 28.2.1994 when it was rescinded vide Serial No. 167 of Notification No. 64/94-CE, dated 1.3.1994.
Under Notification No. 143/94-CE, dated 7.12.1994 rubberised textile fabrics falling under Heading No. 59.05 of the Central Excise Tariff, if used in the factory of their production for the manufacture of exempted footwear falling under Chapter 64 of the Central Excise Tariff, were provided exemption from duty. It is clear from this exemption notification that the rubberised textile fabrics are used for the manufacture of footwear. Earlier there was no exemption for such rubberised textile fabrics when they were used in the factory of their production for the manufacture of exempted footwear. By this exemption notification dated 7.12.1994, exemption was so provided. This legal provision makes it clear that rubberised textile fabrics for use in the manufacture of footwear is a known and identifiable commodity.
30. It is thus clear from these provisions of the law that the rubberised textile fabrics were used for the manufacture of footwear and no exemption was available to such fabrics earlier than 7.12.1994 when they were used for the manufacture of footwear which were exempted from the whole of the duty of excise leviable thereon or were chargeable to nil rate of excise duty.
31. The main argument of M/s. Bata in contesting the levy and the proposal to impose penalty was that the goods in question held to be classifiable as rubberised waterproof fabric, were not a marketable commodity.
32. The marketability does not depend upon the shelf life of a given product alone. The marketability depends upon the fact whether there could be a market for a particular product. If the goods could be brought to the market and could be dealt with in the market, then it could not be argued that such goods were not marketable. In the present case, it has been admitted that depending upon the weather conditions, the goods in question could be stored and kept for use for a period of 10 days, (refer page 156 of the paper book) to 4 weeks (refer page 201 of the paper book). The goods were sent to outside job workers for stitching and return. They were capable of being stored, transported and used over a period of time. As uppers, they had both national and international market. After cutting into specific shape and size without involving any process of manufacture, the goods in question are made into uppers.
Certification by a manufacturer or the general observations in a case law without regard to the nature of the particular product could not form the basis to arrive at the conclusion that a particular type of goods were not marketable. Each case has to be examined and decided on the basis of the facts peculiar to that case. The argument that in a particular case the assessee was not selling the goods to outside customers, would also not be a ground for holding that the goods were not marketable. In the present case, it is clear that the goods were identifiable products, were known commercially as such and were used after stitching and cutting as identifiable parts of the footwear.
The characteristics of the rubberised textile fabrics falling under Heading No. 58.05 of the Central Excise Tariff as it existed during the relevant period have been discussed in the Board's letter No. 59/1/87-CX. 1, dated 2.6.1987 as under--
FRICTION CLOTH [CHAPTER 40 OR 59] The question of the classification of Friction Cloth under the new Central Excise Tariff has been examined by the Board in consultation with the Chief Chemist. In terms of Chapter Note 3 to Chapter 59 of the Tariff, there are two conditions for classification of the product under sub-heading 5905.10 which applies to rubberised textile fabrics other than those of Heading No. 59.02. It is required under the said Chapter Note that the textile fabrics coated with rubber (i) should weigh below 1500 grams per square metre or (ii) when it weighs more, should contain more than 50% by weight of textile material. In this view of the matter, such friction cloth would fall under Heading 59.05 except for such cloth in which the sheet material weighs more than 15 grams per square metre but contains less than 50% by weight of textile material. This particular category would fall under Chapter 40.05 which covers "plates, sheets, or strips of compounded unvulcanised rubber". Thus view finds support through Explanatory Note 3 under Heading 40.05 of the H.S.N. Accordingly, Friction Cloth weighing more than 1500 grams per square metre and containing more than 50% by weight of unvulcanised rubber compound would fall under Heading 40.05 and all other friction cloth would fall under Chapter No. 59.05 of the tariff. The classification of the product may be decided keeping in view of the aforesaid position.
2. By Notification No. 5/87-C.E., dated 15-1-1987 rubberised textile fabrics falling under Heading 59.05 which do not weigh more than 15 grams per square metre and in which rubber predominates by weight have been exempted from duty. While applying this exemption care would have to be taken to ensure that only such Friction Cloth as is classifiable under Heading 59.05 in terms of Note 3(A) to Chapter 59 and also satisfies the description laid down in the notification is extended the benefit of the notification. The matter may be finalised accordingly.
[M.F. (D.R. & 1) Letter No. 59/1/87-CX. 1, dated 2.6.1987] Reference may also be made to the Tribunal's decision in the case of Falcon Tyres Ltd. v. CCE, Bangalore , and MRF Ltd. v. CCE, Goa & Chennai
33.There is no relevancy of vulcanization in these operations-neither in the process of manufacture of rubberised textile fabrics nor its conversion into UPPERS'. Vulcanization, according to the Webster's Ninth New Collegiate Dictionary (page 1323) is the process of treating crude or synthetic rubber or similar plastic material chemically to give it useful properties (as elasticity, strength, and stability). According to the Condensed Chemical Dictionary, Ninth Edition revised by Gessner G. Hawley (page 922) Vulcanization is a physico chemical change resulting from cross-linking of the unsaturated hydrocarbon chain of polyisoprene (rubber) with sulfur, usually with application of heat. Its overall effect is to convert rubber hydrocarbon from a soft, tacky, thrmoplastic to a strong, temperature-stable thermoset having unique elastic modulus and yield properties.
According to Concise Chemical and Technical Dictionary, Third Enlarged Edition,--H. Bennett (page 1111) Vulcanization is an irreversible process during which a rubber compound, through a change in its chemical structure (e.g. cross-linking) becomes less plastic and more resistant to swelling by organic liquids, and elastic properties are conferred, improved or extended over a greater range of temperature.
It is seen from the technical Literature on record (refer page 7 of the order proposed by the learned Member (Judicial) that the Vulcanization is a process to give the proper physical properties to the rubber compound and to make useful rubber articles. Thus, this process is applied either at the stage of rubber or at the stage of rubber articles. This process could not be relevant for the stage of production of rubberised textile fabrics which use rubber, and are usable in the manufacture of footwear. It is only at the stage of footwear that vulcanisation may be relevant, and not at the stage of production of rubberised textile fabrics.
34. The Central Excise Tariff relating to textile fabrics is a multi stage tariff. Duties are levied at different stages. Under Chapter 59 of the Tariff, impregnated, coated, covered or laminated textile fabrics were classified. This duty was separate and in addition to the duty leviable on the base fabrics which were subjected to the process of impregnation, coating, covering and lamination. Under Heading No. 59.05, rubberised textile fabrics, other than tyre cord fabric of high, tenacity yarn of polyamides, were covered. Under Chapter Note 3 of Chapter 59, the expression 'Rubberised Textile Fabrics' was defined as under--
3. For the purposes of heading No. 59.05, the expression 'rubberised textile fabrics' means
(a) Textile fabrics impregnated, coated, covered or laminated with rubber,--
(i) Weighing not more than 1, 500 g/m2; or
(ii) Weighing more than 1,500 g/m2 and containing more than 50 per cent by weight of textile material;
(b) Fabrics made from yarn, strip or the like, impregnated, coated covered or sheathed with rubber, of heading No. 56.04;
(c) Fabrics composed or parallel textile yarns agglomerated with rubber, irrespective of their weight per square metre; and
(d) Plates, sheets or strip, of cellular rubber; combined with textile fabric, where the textile fabric is more than mere reinforcement, other than quilted textile products The definition is wide enough to cover the goods under consideration.
35. The learned Member (Judicial) had concluded that the Revenue has failed to produce any evidence about the marketability of the product in question. The Departmental Representative has submitted that the product in question was admittedly taken out for job work outside the factory. The same after job work was brought back by the appellants for further use. He has also submitted that the canvas stipes manufacturers who did not have the machinery for manufacture of the double textured fabric, had to procure the same from outside.
It is also seen that for stitching the goods in question, they were sent to outside factories and the expected duration of processing/manufacturing had been shown in the challans for movement of excisable goods under Rule 57-F(2) as three to four weeks. It is thus seen that the appellants themselves were treating these goods as excisable. They were availing the benefit of Rule 57-F which was applicable to excisable goods.
36. In the case of Falcon Tyres Ltd. v. CCE, Bangalore , it was held that the calendered fabrics in process which were rubberised textured fabrics for the purpose of Central Excise Tariff were correctly classifiable under Heading No. 59.05 of the Central Excise Tariff as in force during the relevant time. The appellants in that case, as in the present case, were buying base fabric from outside sources. Such fabrics in that case were being coated with rubber in the calendering machine. The rubber content predominated in weight of such clandered fabric and the fabric was said to be unvulcanised. In the present case also, almost similar process was being adopted [refer para 3 of the order proposed by the learned Member (J)].
37. It is seen that the matter is entirely covered by the Calcutta High Court decision in the case of Union of India v. Bata India Ltd. . The issue for consideration was, whether the goods produced and named as herefit sheets, thermoplastic sheets and celluloid sheets from cotton and silk fabrics for use in footwear amounted to manufacture to attract excise duty under Item No. 19 and 22 of the erstwhile Central Excise Tariff. The High Court framed the question for their consideration in para 5 as "Whether the respondent is the producer or manufacturer of the said goods and as such liable to pay excise duty thereon or those products are only intermediary processes, used to complete the footwear." In para 15, the High Court observed that the niceties of the technicalities for the manufacture of the sheets were not the decisive test and that there was no denying the fact that coating of cotton fabrics, silk fabrics as well as artificial silk fabrics turned the fabrics into a special kind of sheets through stages of processing with rubber and other chemicals being impregnated into the fabrics. In para 27, the High Court made a reference to the other manufacturers of shoes specially the small manufacturers who could not afford to have a large plant exclusively engaged in the production of such sheets and due to the process involved, they were to buy such sheets from the producers of such sheet. In para 28, the Hon'ble High Court had discussed as under--
28. Again, no case has been made out by the respondent that they are holding monopoly in the manufacture of these particular sheets or such sheets are only used in their shoes to the exclusion of all other manufacturers. If these sheets are a common component for manufacture of the type of shoes the respondent manufactures the sheets would definitely be vendible. It is just this one circumstance which in our opinion is crucial to the determination of the matter. It may be, in this connection, mentioned that the respondent in their contentions before the Trial Court did not altogether rule out the possibility of marketing the sheets. The respondent never made the claim that they have monopoly in the manufacture of shoe with such sheet as re-enforcement material for the shoe-uppers. So, similar type of shoes wherein such sheets are embodied have to be as a necessary implication assumed to be manufactured by other shoe manufacturers. In this context, the assertion of the respondent that the manufacture of shoe is a guarded secret of the respondent actually goes as evidence against the respondent. It goes to enhance the vendibility of the sheets, other shoe manufactures not being in possession of the technical know how to manufacture as efficacious as the respondent's product shall be more drawn to buy them.
In para 30, the High Court held that the sheets were vendible. In para 33, it was observed as under--
The decision on the merits against the respondent renders the question on limitation unnecessary and does not call for determination.
When a harmonised reading is given to the judgment, the matter had been squarely and unequivocally decided against M/s. Bata. Thus, the observations of the learned Member (Judicial) that reliance on the judgment by the adjudicating authority was not appropriate, do not flow from the ratio of the said decision of the High Court. The Hon'ble Supreme Court had dismissed the SLP filed by M/s. Bata and thus the decision of the High Court has become final and this Tribunal cannot go against the ratio of the said decision.
In the Court Room Highlights, in 1993 (68) ELT A-158, the position has been reported as under--
Intermediate products also excisable but dutiable goods must be marketable--Actual sale not necessary--Civil suit no bar in excise cases The Supreme Court Bench comprising of Hon'ble Mr. Justice J.S. Verma and Hon'ble Mr. Justice S.P. Bharucha on 24.9.1993 has dismissed the Special Leave Petition S.L.P. (C) No. 6164 of 1993 filed by M/s. Bata India Ltd. against the judgment and order dated 12th January 1993, passed by a Division Bench of the Calcutta High Court in Appeal No. 443 of 1978 (Union of India v. Bata India Ltd.) By its impugned order, the Calcutta High Court held that the three types of sheets, namely, herefit sheets, thermoplastic sheets and celluloid sheets from cotton and silk fabrics manufactured by the petitioner are excisable goods even though they are used as articles at the intermediary stage in the process of manufacture of final and different product i.e. footwear. There is no absolute bar of Civil Court's jurisdiction in excise cases and goods though specified in Central Excise Tariff are excisable unless shown to be non-marketable.
They may be raw materials for manufacture of further goods but they by themselves constitute goods hence are liable to duty PRESENT: Mr. Ashok Desai, Sr. Advocate, for M/s. Khaitan & Co., for the Petitioner.
The Supreme Court had noted the arguments that the discussion in the order of the Calcutta High Court was against M/s. Bata, Thus, even when the Hon'ble Supreme Court had not gone into the merits of the case, the decision of the Calcutta High Court stands and has the force of law.
38. The various schemes of exemptions relating to the product has been discussed in the impugned order and I agree with the same.
39. As regards the limitation, the appellants' unit was working under self-removal procedure. The manufacturer was an organised sector company. The view of the Calcutta High Court was not in favour of the appellants and in the facts and circumstances of the case, I agree with the view taken by the adjudicating authority that the extended period of limitation has been correctly invoked in these proceedings.
40. Similarly, with regards to the penalty, the appellants' unit was in the organised sector and the contraventions of the provisions of the law are established against them and thus in the facts and circumstances of the case, the imposition of penalty as determined by the adjudicating authority was fully justified.
41. In the case law discussed in the order recorded by the learned Member (Judicial), the products were different. In the present case, the goods were not intermediate products in the process of manufacture of footwear. They were independent products having their own name and identity. There are a number of stages in the manufacture of footwear and different manufacturers do not undertake all the processes of manufacture. There is a market for different parts and even when the goods are sold under a single brand name, there are different manufacturers of parts, and the various parts are transmitted to the units undertaking the finishing of the footwear. In the case of footwear, rubber textile fabric was not a continuous stage of manufacture but was an independent process which all the manufacturers of footwear may not be undertaking as has been observed by the Calcutta High Court in the appellants' own case as referred to above. Thus, the various decisions discussed in paras 11 to 22 relating to other products, such as, rubber belting etc. are not applicable to the facts and circumstances of the present case.
42. On careful consideration of the matter, I find no merit in this appeal filed by M/s. Bata (India) Ltd., and the same is rejected.
DIFFERENCE OF OPINION In view of the difference of opinion between Member (Judicial) and Member (Technical), the matter is placed before the Hon'ble President for reference to the Third Member on the point whether the appeal filed by M/s. Bata (India) Ltd. is to be allowed as proposed by the Member (Judicial), or the appeal filed by M/s. Bata (India) Ltd. is to be rejected as proposed by Member (Technical).
V.K. Agrawal, J.
43. In this referral order, the issue involved is whether the double textured rubberized fabric/unvulcanised sandwiched fabric manufactured by M/s. Bata India Ltd., is marketable or not so as to attract Central Excise duty.
44. Shri S.K. Bagaria, learned Advocate, reiterated the arguments which were made by him at the time of hearing of the matter by the referral Bench. The learned Advocate highlighted that the issue is fully and directly covered in appellants' favour by direct judgment of the Hon'ble Calcutta and Delhi High Court in respect of identical products in their own case; that the Calcutta High Court in its judgment dated 23.7.1979 held that the goods were simply friction cloth unvulcanised, and as such not marketable; that the Delhi High Court judgment also relates to identical in-process material. In addition, he relied upon the decision in the case of CCE v. National Insulated Cable Co. of India Ltd. , wherein it was held that the cotton fabrics coated with rubber solution still wet stage, when unwrapped around cable, is not marketable, rubberized cotton fabric nor cotton fabrics subjected to process of rubberising. The Tribunal also held in the said case that "the process of the cotton fabric will end only when it is vulcanised". Further in BMP Beltings Ltd. v. Union of India , it was held that unvulcanised fabric-obtained by applying rubberising component to cotton fabric and then captively used in fan belts and V belt could not be subjected to any Central Excise duty the same was not marketable. The learned Advocate submitted that the relevance of transported and used over a period of time and as 'uppers' they have both national and international market; that in absence of any evidence adduced by the Department, the learned Member (Tech) was not correct or justified in making his own suppositions; that in any case, the dispute in the present matter does not at all relate to any shoe uppers, as it relates to the so called rubber textile fabrics which is an intermediate in-process material prepared at their factory for manufacture of footwear and which remains only in unvulcanised, erude, unstable and elementary condition; that in fact such unvulcanised fabrics or the uppers cut therefrom are never traded, nor are capable of being traded nationally or internationally. He further mentioned that the learned Member (Tech) has referred to the statement of Mr. Manhar Jagota, according to whom, the object of putting the mixture in between two textile fabrics was to generate tensile strength, elasticity, water proof ness and abrasion resistance; that full statement of Mr. Jagota should have been referred to as in the same statement he had clearly deposed that the shoe was vulcanized in vulcanizing chamber and without vulcanization process it was completely useless inasmuch as rubber mixture was in raw form. He further contended that the excisability of the product is to be decided on the basis and in the Sight of the evidence adduced by the parties and the issue could never be made clear by legal provisions as has been assumed by the learned Member (Technical); that the decision in the case of Falcon Tyres v. CCE and MRF Ltd. v. CCE , are not relevant as in these decisions the issue only related to classification of rubberized or calendared fabrics; that none of the disputes involved in the present matter were decided in these cases. He also mentioned that under Rule 57F the partially processed inputs can vulcanization in the manufacture of rubber textile fabrics is evident in following decisions also:--
1. CCE v. Bharat Electronics & Plastics .
2. Brammer V. Link Belting India Ltd. v. ACCE .
3. CCE v. K.K. Rubber Pvt. Ltd. 2000 (39) RLT 895.
45. Learned Advocate further submitted that the appellants have produced sufficient evidence to establish that the impugned in-process material is not at all marketable whereas no evidence whatsoever has been produced by the Department to prove the marketability of the impugned product; that it follows from the decision of the Supreme Court in the case of K.K. Rubber Co. Pvt. Ltd., that in-process material, sought to be called rubberized cotton fabric, was not marketable in the light of the evidence adduced by the parties thereto. The learned Advocate also relied upon the authoritisation of such literature, which has already been detailed in the referral order by the learned Member (Judicial). Learned Advocate also mentioned that inspite of the definite stand of the appellant that the impugned in-process materials were not at all marketable no evidence was adduced by the Department either in the show cause notice or in the impugned order that it has been held by the Supreme Court in the case of Hindustan Ferodo Ltd, v. CCE Bombay 1997 (89) ELT 16 (SC); that when no evidence is adduced by the Department, Tribunal cannot make suppositions that tantamount to evidence; that learned Member (Technical) has made number of suppositions such as shoe uppers are known commodity and traded in the National/International Markets; the uppers are regularly imported in the Country for a number of well known foreign brand; they were capable of being stored, be sent out for carrying out other operations necessary for manufacture of final products and they were sending out the partial processed fabrics to the nearby workers for stitching purposes within their short shelf life of 10 days to 4 weeks; that final products were footwears and not the in-process material sent to job workers; that it is settled law that unless the test of marketability is satisfied, no duty can be levied. Reliance was placed on the decision in the case of Bhor Industries Ltd. v. CCE ; Nirlon Synthetics and Chemicals Ltd. v. CCE , and Moti Laminates Put. Ltd. v. CCE .
46. Finally, learned Advocate mentioned that the issue involved is not covered by the decision of the Calcutta High Court as , read with Order dated 24.9.1993 of the Supreme Court as reported in 1993 (68) ELT A 158; that firstly, the said decision did not relate to the rabberized fabrics as it related to different products that consequently, even though, several findings in the said judgment of the Calcutta High Court were against them, in the operative portion, the departmental appeal was dismissed; that they filed a Special Leave Petition in the Supreme Court which was pleased to take the view that since the operative part of decision was in their favour, it was not necessary to decide the points raised in the SLP; that the SLP was dismissed for these reasons by the Supreme Court; that due to these peculiar facts and circumstances, the SLP was dismissed and as Supreme Court neither considered nor decided the marketability aspect, the said decision of the Calcutta High Court cannot be relied upon. He also contended that larger period of limitation of five years is not applicable in the present matter, as the entire facts were known to the Department and particularly, in view of the decisions of the Calcutta High Court, that non-filing of Classification List and non-maintenance of statutory Central Excise records were due to their bona fide belief and impression that the impugned materials were not liable to excise duty, which was based on the findings of the Calcutta and Delhi High Court, that for the same reason, penalty of Rs. one crore is not imposable on the appellants.
47. Countering the arguments, Shri D.K. Bhowmik, learned JDR reiterated the arguments submitted earlier before the referral Bench and emphasized that even by appellants own admission the impugned goods were capable of being stored for a period of two to four weeks, which cannot be considered to be short shelf life; that further, it is also admitted fact that the goods were taken out of their factory to job workers for stitching etc.; that it was held in the case of Indian Oxygen Ltd. v. CCE, Bhubhneswhar , short shelf life is immaterial. He also relied upon decision in the case of Amara Raja Batteries Ltd. v. CCE , wherein it was held that lead oxide, capable of being kept in cilos for about three weeks, is goods and, therefore, excisable. He further submitted that as a new product emerges manufacture has taken place and as the product in question is taken out to job workers outside the factory, marketability is established; that canvas shoe manufacturer, who does not have machinery for manufacture of the impugned product, can always buy the same from the appellants or any other manufacturer. That this is a fit case for invoking the extended period of limitation as the appellants neither declared about manufacture of rubberized fabrics nor maintained any record. Finally, he submitted that the product is classifiable under heading 5905.10 of the Schedule to the Central Excise Tariff Act.
48. We have considered the submissions of both the sides. As per provisions of section 3 of the Central Excise Act, Central Excise duty is leviable on the goods manufactured in the country. The process of manufacture given by the learned Advocate shows that rubbers, chemicals, solvents etc., are mixed in mixer and this mixture in warm and sticky condition is put into three bowls calendering machine where it passes through upper two rollers so as to facilitate its simultaneous spreading in between two layers of fabrics. It is thus apparent that a new product emerges as a result of the process undertaken by the appellants irrespective of whatever the name is given to the product by the Department or the appellant. The test laid down by the Supreme Court in the case of Union of India v. DCM , is satisfied as a commercially different product having distinct name, character or use emerges as a result of the process undertaken by them. It is settled law that mere manufacture or mere mentioning of an item in the Central Excise Act is not sufficient to attract levy of excise duty. The product is required to be marketable i.e. it should be capable of being brought to the market or being bought or sold. It is the case of the appellants that the fabrics so obtained by them does not have much shelf life as it vary from 10 days to 4 weeks depending upon climatic conditions. It was held by the Supreme Court in Bhor Industries (supra) that "for articles to be goods, these must be known in the market as such or these must be capable of being sold in the market as goods." However, Supreme Court further, observed in the same case that "actual sale in the market is not necessary, hence used in the captive consumption is not determinative but the articles must be capable of being sold in the market or known in the market as goods." Same principle was reiterated in Hindustan Polymer v. CCE , wherein it was held that for an article to be goods, this must be known in the market as such, and this must be capable of being sold in the market as such. I observe that it is not disputed fact the impugned fabric is sent by the appellants to job workers for stitching purposes and is received back from them. It has been emphasized by the appellants that they ensure that job worker should be located nearby their factory inasmuch as the said impugned materials have to be necessarily brought back to their factory and used within their shelf life as early as possible as any delay would render the material totally useless. It is, thus, apparent that the material is capable of being brought to the market for being bought and sold within the limited shelf life it has. If the contention of the appellants is accepted, that because of short shelf life, the product is not marketable, a number of products in the market has to be held to be non-marketable, for example Sweets which are perishable by nature having very short shelf life inasmuch as some sweets have only shelf life of a few hours. Numbers of other goods are marketed in the controlled conditions. The short shelf life does not mean that the product is not marketable. In the case of Indian Oxygen Ltd. (supra), the Tribunal held the view that no shelf life was not material to the excisability of goods in view of the fact that the goods were actually being marketed. Same is the situation in the present matter as the impugned goods move from the premises of the appellants to the premises of the job workers who worked on the same and returned the same to the appellants. Similar views were held by the Tribunal in the case of Amara Raja Batteries case wherein three weeks shelf life was held to be sufficient to hold the goods liable to excise duty. In the said case, even the fact that the appellants were not selling them was held to be of no consequence so long as it could be shown the goods to have shelf life. Moreover, Division Bench of the Calcutta High Court in the case of appellants themselves as considered the excisability of goods namely herefit sheets, thermoplastic sheets, and celluloid sheets. In the said matter, the processes undertaken were that cotton fabrics were treated in the stiffener solution and urea formaldehyde resin compounded with various other non-plastic ingredients like filter, oil and resin and dissolved in the water. The said solution was spread on the cotton fabrics. Some Cotton fabrics were treated with a solution of polystyrene compounded with plasticisers and other unsaturated elastomer dissolved in a blend of solvent and thereafter the compound or solution was spread on the cotton fabrics and dried. Artificial silk fabrics were coated with a suitable rubber compound dissolved in Petrol. Thereafter, the said fabrics were cut into small pieces, which was then reactivated with catalyst solution. Then these pieces were put on to the shoes and the same were then vulcanized. The pleas taken by the appellants in that matter were that the processing done by them did not make or transform fabrics into a new substance and the said processed fabrics were not known to the consumer or commercial community or in the market in general; the fabrics after processing were merely unfinished intermediary components which were not marketable and could not be bought arid sold. It was also urged by them that these must be used immediately in the stage of manufacture of footwear else, processed fabrics would loose their utility and became totally useless. The Calcutta High Court held as under:--
...there is no denying the fact that coating of cotton fabrics, silk fabrics as well as artificial silk fabrics turns the fabrics into a special kind of sheets through stages of processing with rubber and other chemicals being impregnated into the fabrics. The crux of the matter is whether those sheets are known to the market as a distinctive and finished commodity with a separate name. This again rests on the answer to the question whether sheets are capable of being taken to the market and bought and sold.
49. The Hon'ble High Court after taking into consideration the various submissions made by the assessee including the statement that the transition time from the manufacture of the sheet and their use in the manufacture of footwear is so brief that sheets can never be marketed, held as under:--
We are not in disagreement with the submissions made on behalf of the respondent-plaintiff that unless vendible no product can be subject to the levy of the duty. Therefore, it is a matter of evidence whether end product i.e. the sheets which are solely consumed by its manufacturer for its ultimate product, footwear, could have a market. Apparently they should, because according to the respondent's own assertion respondent have special expertise to the manufacture of these sheets, which are essential component of the shoes as the strengthening materials for the toes and heels. That being so, the other manufacturers of shoes specially the small manufacturers who cannot afford to have a large plant exclusively engaged in the production of these sheets shall be induced to buy such sheets.
50. I am of the view that ratio of this decision is squarely applicable to the facts of the present matter and the impugned order is capable of being marketed and as such is liable to Central Excise duty. In view of the Calcutta High Court decision in the appellants' own case, the decisions, relied upon by the learned Advocate for the appellant in support of his contention that unvulcanized fabrics is not chargeable to duty, are not relevant for the decision. Similarly, the Calcutta High Court decision of 1979 relied by the learned Advocate was delivered by single judge whereas the decision relied upon by the Revenue is delivered by the Division Bench. Similarly, the Delhi High Court decision, which was followed by the Calcutta High Court in its Order dated 23.7.1979 was also delivered by single judge. The learned Advocate also placed reliance in the case of K.K. Rubber Company 2000 (39) RLT 895 (SC). A perusal of the judgment reveals that the Supreme Court remanded the matter to the Tribunal for decision on the question of marketability of rubberized cotton fabrics/friction cloth. The learned Advocate for the appellants has also made submissions about the non-applicability of extended period of limitation and on the question of quantum of penalty. I find that the difference between the two learned Members of the referral bench was on the question of marketability of the product. No views were expressed by the learned Member (Judicial) on these aspects. Therefore, I refrain from considering these two aspects. I hold that the product in question is marketable as held by the learned Member (Technical).
FINAL ORDER In view of the Majority Order, the appeal filed by M/s. Bata India Ltd. is rejected on merits by holding that double textured rubberised fabric/unvulcanised sandwitched fabric is an excisable product. However, as there is no Majority Order available on the point of limitation and on the applicability of Notification and on the quantum of penalty, the appeal is posted for-rehearing on the said issues.