Karnataka High Court
Cipla Limited vs Union Of India on 1 January, 1800
Equivalent citations: 1990(25)ECC444, 1990(46)ELT240(KAR)
ORDER
1. The petitioner -company is a manufacturer of patent or proprietary medicines at its factory in Bangalore. Among the several products the petitioner manufacturers Salbutamol Sulphate (hereinafter referred to as `SS') and also produces Benzyl Methyl Salicylate (`BMS'), which is an input which goes into the manufacture of the `bulk-drug' salbutamol sulphate. `BMS' manufactured by the petitioner- company is consumed in entirety in the manufacture of the said bulk- drug. It is also stated in the petition that `BMS', which is a bulk- drug intermediate is not used in the manufacture of any other drug whatsoever and is used exclusively for the manufacture of `salbutamol sulphate.' It is also the case of the petitioner that `BMS' is not sold in the market either by the petitioner-company or any other company.
2. In the classification list filed by the petitioner-company during the years 1986-87, as per Annexures-B and B1, `BMS' was shown in Col.2 among `other organic chemicals' produced by the petitioner-company and exemption was claimed in respect of the said chemical as `non- excisable'.
3. Thereafter, two show cause notices were issued by the Superintendent of Central Excise Hoskote Range, Bangalore-46 on 25-8- 1987 (Annexures- `C' and `D'), as to why `BMS' should not be classified under the sub- heading 2942.00 and for the latter period under the sub-heading - 2913.00. After an elaborate reply filed by the petitioner to the said notices and affording a personal hearing to the petitioner, an adjudication order was made by the Assistant Collector of Central Excise, Cantonment Division, on 25-2-1988, as per Annexure- G.
4. "BMS" manufactured by the petitioner-company was held an excisable product classifiable under "other organic compounds" under the heading - 2913.00 upto 9-2-1987 and under heading 2942.00 from 10-2-1987 onwards.
5. This order was challenged by the petitioner-company before this Court in W.P.No. 7428 of 1988. By order dated 21/27th July 1988 this court allowed the writ petition and quashed the order dated 25-2-1988 and remanded the matter to the second respondent to make a fresh order in accordance with law and in the light of the observations made in the said order.
6. After the said remand, the petitioner was again heard and a `de novo' order was made on 23-12-1988 which is challenged by the petitioner in this writ petition, more or less on the same grounds urged in the earlier writ petition.
7. The main contention of the petitioner-company, as advanced by Sri Pochakanawalla, the learned Counsel, is that the adjudicating authority has again passed an order which is identical in all respects with the earlier order, which was quashed by this Court and has upheld the levy for the very same reasons. He has also pointed out that while remanding the case for passing a de nove order, three decisions were relied upon on behalf of the petitioner, namely :
(i) Union of India v. Delhi Cloth Mills Co., .
(ii) Union Carbide v. Union of India, , and
(iii) Geep Industrial Syndicate v. Union of India, .
In support of the contention that `BMS' is only a drug intermediate used as an input in the production of the bulk-drug, Salbutamol Sulphate, and is not a marketable commodity to attract levy of duty under the Central Excise Act (the Act). The finding recorded by the Assistant Collector on the first occasion that `marketability' or otherwise of the product is not at all a criterion for classification and levy of duty under the Act, was rejected by this Court and after hearing the learned Standing Counsel for the Department, the matter was remanded to make a fresh order.
8. I made the order earlier in W.P. No.7428/88 and the main question that was argued on behalf of the petitioner on which there was not much of resistance on behalf of the Department, centered round the test of marketability. This assumed importance, having regard to the specific case put forward by the petitioner before the Adjudicating Authority that `BMS' is not a drug which is known in the trade as a marketable commodity, it has no separate existence of its own as `goods' to attract excise duty and is only a bulk-drug intermediate which goes into the manufacture of the finished product, namely - Salbutamol Sulphate.
9. The reasons given by the Assistant Collector in his de novo order rejecting the contention of the petitioner are these:-
(1) that `BMS' is an organic chemical and is classified as such by the petitioner in the classification list filed by the petitioner and it, therefore, attracts levy of excise duty falling under `other organic compounds' under the Tariff Act; and,
(ii) that under Rule (2) of the Rules of interpretation framed under the Tariff Act, marketability or otherwise of a product is not a criterian for its classification. It is on these grounds that `BMS' was held an excisable product and classifiable under the heading `other organic compounds'
10. Sri Pochkhanawalla, learned Counsel, who argued the case of the petitioner, on the earlier occasion also, challenged this order and has argued that the de novo order being contrary to the three decisions of the Supreme Court referred to above, is liable to be quashed. It was argued that it was only after accepting the contention of the petitioner on the basis of the said decisions, this Court remanded the matter to the Adjudicating-Authority to make a fresh order and the authority was, therefore, bound to decide the issue in the light of the High Court's order.
11. In the record of personal-hearing, produced as Annexure-`F' to the writ petition, it is seen that one of the contentions of the petitioner before the Assistant Collector was, that the Department had failed to adduce any evidence as to the marketability of the produce and the burden was on the Department that the goods in question, viz., `BMS' was a marketable commodity.
12. Let me now refer to the de novo order passed by the Assistant Collector, as per Annexure - `J'. No doubt, the order is made by a different officer, but I must point out that even the present order is nothing but a replica of the first order and the classification of `BMS' under the `other organic-compounds' for purpose of levy of excise duty is confirmed relying again on Rule 2(a).
13. The Assistant Collector has given various reasons to uphold the levy. Reliance is placed on Rule 2(a) of the Rules to hold that even incomplete or unfinished goods has all the essential characteristics of complete finished goods for the purpose of levy under the Central Excise Act. It is also his view that the present adjudication made under the Central Excise Tariff Act, `BMS', which is an organic compound as specified under Chapter - 29 of the Tariff Act, is excisable goods and is, therefore, exigible to levy.
14. The next reason adopted by the Asst. Collector is, `BMS' is an organic chemical manufactured by the petitioner-company as an intermediate product and by virtue of Rule 9 read with Explanation, it shall be deemed to have been removed for purposes of levy though it is captively consumed for the manufacture of another finished product. The Asst. Collector relied upon the decision of the Supreme Court reported in 1982 (32) E.L.T. 234.
15. The other important conclusion of the adjudicating authority is that marketability is not at all the criteria to decide the excisability of the product under the Central Excise Tariff Act. He relied upon Rule 2(a) of Rules of Interpretation for coming to this conclusion.
16. The attack of the learned Counsel for the petitioner of this order is summarised as follows:-
(i) that the enactment of the Central Excise and Tariff Act, 1985, does not whittle down the interpretation of Section 3 and 4 of the Central Excise Act, nor does it make any difference in the matter of classification;
(ii) Section 2 of the Central Excise and Tariff Act provides only for the levy of rate as per the Schedule, and is not a provision governing the interpretation of the Schedule;
(iii) the Asst. Collector deliberately avoided making reference to the three Supreme Court decisions relied upon before him as to the application of the ratio as regards the test of marketability;
(iv) having realised that no evidence or material was produced by the Department as to the marketability of the goods in question, the Assistant Collector tried to avoid the issue in an ingeneous manner and in defiance of the specific direction given by this Court in W.P. 7428/88; and
(v) it was lastly argued that the two decisions rendered subsequently by the Supreme Court in Bhor Industries Ltd. v. Collector of Central Excise and in the Collector of Central Excise v. Ambalal Sarabhai Enterprises reiterate the law as to the marketability test laid down by the Supreme Court earlier, and this Court should, therefore, quash the impugned order.
17. A faint attempt was made on behalf of the Department by Sri Ashok Haranahalli to justify the order made by the second respondent. It was also his argument that after the Tariff Act, 1985, came into force, the marketability test is not a criteria to decide the exigibility to duty as specified under the Tariff Act. Reliance was also placed on the Rule of Interpretation, viz., Rule 2(a), in support of this argument. It was, therefore, contended that `BMS', though it is an intermediate product, has all the essential characteristics of a finsihed product and is, therefore, exigible to duty under the Act as an organic compound. Relying on this Rule, it was also argued that it need not be proved by the Department that the goods are marketable or are actually bought and sold.
18. In the light of these arguments, it becomes necessary to go back to the earliest of the decisions of the Supreme Court in Union of India v. Delhi Cloth Mills . The Supreme Court considered the connotation of the term, `goods' which is not defined in the Central Excise Act, vis-a-vis the meaning of the term, `manufacture'. It was held that excise duty is on the manufacture of the goods and not on the sale. `Goods' in the context of the levy of duty under the Central Excise Act, it was held, should be understood as an article or a new substance known to the market and which is bought and sold.
19. This test was applied and followed by the Supreme Court in the case of Union Carbide India v. Union of India and Others .
20. Agreeing with the contention of the appellant before the Supreme Court, it was held, on facts, that the aluminium cans produced by them cannot be described as `goods' for the purpose of excise duty, inasmuch as they are not marketable and are prepared entirely by the appellant for the flash lights manufactured by it. It was reiterated in para-7 of the Judgment by Sri Pathak, J. (as he then was) that the question whether an article or substance manufactured is capable of being sold to a consumer should be examined on the facts of each case. It was also ruled that, if the manufacturer avers in the affidavit that a particular product is unknown in the market and no satisfactory material to the contrary is placed by the Department, the contention of the manufacturer must be accepted, since the burden shifts to the Department to prove that they are excisable goods under the Act. His Lordship also referred to the meaning given to the expression "goods" for the purpose of Central Excise Act in South Bihar Sugar Mill's case reported in 1978 (2) E.L.T. (J 336) (S.C.) in which it was held, "to become goods an article must be something which can ordinarily given to the market to be bought and sold".
21. Same was the view taken by the Supreme Court in yet another decision in Geep Industrial Syndicate Ltd. v. Central Government and Others - 1987 (31) E.L.T. 365 (S.C.).
22. All these three decisions were relied upon by the petitioner before both the Assistant Collector, who pased the two orders, the latter being the one impugned in this writ petition.
23. Apart from the fact that the second respondent had to apply the marketability test of the facts of the case, the defiant attitude of the second respondent in trying to avoid the real issue was demonstrated by the petitioner's Counsel that he (second respondent) has not even made a reference to the three decisions of the Supreme Court relied upon by them before the Adjudicating Authority and referred to by me in the earlier order made in W.P. No.7428/88. It was, therefore, argued vehemently by Sri Pochkhanawalla that the Assistant Collector's order, made in defiance of the order made by this Court and the direction given in W.P. No.7428/88 deserves to be quashed by this Court.
24. In the absence of any evidence adduced by the Department, and having regard to the persistent and determined attitude which the adjudicating authority has adopted in this case, no useful purpose would be served in remitting the matter to him again. The second respondent who is expected to exercise his quasi-judicial function in a judicious manner has failed to discharge his function as an adjudicating authority under the Act, applying the law as declared by the Supreme Court in the cases referred to before him and in the light of this Court's order in the previous writ petition.
25. Therefore, I proceed to decide the writ petition on the basis of the law laid down by the supreme Court as applicable to the uncontroverted facts of this case. The well accepted position in law is that the time honoured test of marketability should be satisfied even in respect of transient item which is captively consumed in the manufacture of other finished products. This view is reiterated again in the two later decisions of the Supreme Court in: (1) Bhor Industries Ltd. v. Collector of Central Excise , and (ii) Ambalal Sarabhai Enterprises case .
26. It is relevant to notice that in particular, the Supreme Court has held that marketability is an essential ingredient in order to be dutiable under the Schedule to the Central Excise Act and also under the Tariff Act, 1985. In both the decisions, his Lordship Sabyasachi Mukharji has referred to the earlier decisions of the Supreme Court in DCM Mills case (ii) South Bihar Suagr Mills case and (iii) Union Carbide case, and affirmed and reiterated the ratio laid down in the said decisions.
27. However, it would be necessary only to notice the additional observations made by the Supreme Court in the case of Bhor Industries referred to above. His Lordship held, that in the absence of evidence or proof produced by the Department in that case that the articles in question (Crude PVC film) were excisable goods exigible to duty, the Tribunal was wrong in not applying the proper test viz., the test of marketability and reversed its order. The Supreme Court further observed that simply because a certain article falls within the Schedule, it would not be dutiable under the Excise law, if the said article is not "goods' known to the market. It was further observed, that it would be necessary to find out whether the goods in dispute are articles known in the market as separate, distinct and identifiable commodities and whether any tariff duty should be levied merely following the description of the article in the Schedule without finding out whether those goods are things which can ordinarily come to the market to be bought and sold.
28. In Ambalal Sarabhai's case referred to above, the question was whether starch hydrolysate is goods? The contention of the petitioner- assessee was that the starch hydrolysate manufactured by the Company was captively consumed in the manufacture of sorbitol falling under Item 68 of the Central Excise Tariff. The Supreme Court held, that while attempting to levy duty on such transient items which are captively consumed in the manufacture of another finished produce, it must be proved and established by the Department that even such items or articles are known in the market as distinct and separate articles having separate use, and therefore, would still be `goods' to attract levy of the Central Excise Duty. It was further held, though actual sale is not necessary, evidence must be produced by the Department that the goods, in fact, are capable of being marketed. Observing that the Department must take a practical view on the basis of the available evidence, it was held that the revenue had failed to discharge its onus to prove that starch hydrolysate was dutiable.
29. An argument was advanced by the Counsel for the Department that both these decisions were rendered by the supreme court after exhausting the remedies of appeals under the Central Excise Act and that, therefore, this Court could not interfere in this case at the stage of the decisions rendered by the adjudicating-authority.
30. I have to reject this contention since the facts are uncontroverted in this case and the Department failed to adduce evidence as to the marketability of the goods in question and did not utilise the opportunity granted by this Court by quashing the first order of adjudication and remanding the matter so that the Department might be in a position to adduce evidence to the contrary.
31. Having considered all the contentions of the learned Counsel for the petitioner and the Department, I am of the opinion that no useful purpose would be served by remanding the matter again to the adjudicating authority in the light of the view expressed above.
32. I, therefore, allow the writ petition and quash the impugned order and direct the Department to refund whatever duty was paid by the petitioner on the value of "BMS".
33. The Central Government should pay the cost of the petitioner which is assessed at Rs.1000/-.