Customs, Excise and Gold Tribunal - Delhi
Indian Textile Paper Tube Co. vs Collector Of C. Ex. on 13 March, 1995
Equivalent citations: 1995(77)ELT372(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. In both these appeals, common question of fact and law arises and hence they are taken up together for disposal as per law. The ld. Collector (Appeals) had disposed both the appeals by a common order dated 31-10-1988.
2. The appellants manufacture paper cones, paper tubes, paper tubes for ring spinning, spools for winding thread and Defence containers. For the manufacture of these products, they require
(i) Starch based adhesives, (ii) Casein based adhesives, (iii) Movicall and (iv) Sodium Silicate During the course of examination, the departmental officials noticed that the above items (iii) & (iv) have been directly purchased and used as such as adhesives. But the Item Nos. (i) & (ii) were manufactured by the assessee. Therefore, the Supdt. called for the process of manufacture of the adhesives. The details furnished by the assessee are as follows : (i) Casein based adhesives :
Casein is a by-product of milk obtained from suppliers of Gujarat. This is mixed with cold water and lime powder and casein based glue is manufactured.
(ii) Starch based glue :
Starch is a product made out of TAPIOCA and bought by them in open market. Starch is mixed with hot water, hydrochloric Acid and lime powder.
3. Therefore, the department by their show-cause notice dated 10th Aug. 1987 demanded from the assessee as to why these two products should not be classified under Chapter Heading 3501.00 and 3505.90 respectively. It was also stated in the show-cause notice that as the final products were articles of paper, being classifiable under Heading 4818.19 and cleared with 'Nil' rate of duty; hence the adhesives were not entitled to the benefit of the Notification Nos. 177/87 and 217/86 both as amended. A demand of Rs. 29,296.15 for the clearances made during the period 10-2-1987 to 30-6-1987 was also demanded under Section 11A of the Central Excises & Salt Act, 1944. Another show-cause notice dated 13-10-1987 was also issued demanding duty of Rs. 15,851.25 for the clearances made during the period 1-7-1987 to 31-8-1987.
4. The assessee contested these show-cause notices' inter alia, on the ground that the products in question are not goods, as the same is not bought and sold in the market, it is not marketable as it does not have a shelf life. It has also been pleaded that the product is in a solid form. They add water in the solid adhesives and it cannot be preserved for more than a day. However, these contentions have not found favour with both the authorities, who have held the products as goods and hence as dutiable.
5. The ld. Collector has held that non-supply of the report of the Chemical Examiner has not resulted in denial of natural justice. He has also rejected the ground taken by the assessee that the product does not have a shelf-life and is not marketable. He has held that the product answers the description under the relevant tariff and therefore, the goods to be held as marketable and dutiable. He has held that it is for the appellants to show that the goods are not stable in the character and that they are not marketable and hence it has to be taken that the assessee has no evidence in this regard. He has held that the department cannot adduce evidence where the allegations are made by the assessee on the ground that in common law one who alleges has to prove. It is the Collector's reasoning that the goods have been mentioned in the tariff heading and that the burden to show that they are not goods is on the assessee.
6. We have heard ld. Advocate, Shri C. Chidambran and Shri Somesh Arora, ld. JDR for the Revenue.
7. Ld. Advocate submitted that the department has classified the product under 35.01 which includes the goods of the following description :
Heading Sub-heading Description of goods Rate of duty
No. No.
35.01 3501.00 Casein, casemates and 15%
other casein derivatives;
casein glues
He submitted that the product is not Casein and that the report of the Chemical Examiner has not been furnished to them and it is also not known in what context, the report has been given and it is also not clear as to whether the Chemical Examiner has stated that the product is a Casein or not. It is his submission that the assessee is preparing this solution for immediate use and that it does not have a shelf life. In this context, he has submitted that it not being a Casein, it does not fall under Chapter 35 and therefore, the burden to show it had marketability and that they are 'goods' is on the department and not on the assessee. He submitted that merely because the item is said to be covered by a tariff entry that by itself cannot be a ground to hold the product to be classifiable and dutiable unless the question of marketability has been established. In this context, the Apex Court has already laid down the law that mere mentioning in the Schedule will not make the products dutiable and in this context, the ld. Counsel has relied on the following rulings :
1. Sandoz India Ltd. v. Union of India and Ors. -1980 (6) E.L.T. 696 (Bom.)
2. India Vegetable Products Ltd. v. Union of India and Ors. -1980 (6) E.L.T. 704 (Bom.)
3. Union Carbide India Ltd. v. Union of India and Ors. -1986 (24) E.L.T. 169 (S.C.)
4. Bhor Industries Ltd. v. Collector of Central Excise -1989 (40) E.L.T. 280 (S.C.)
5. Collector of Central Excise v. Ambalal Sarabhai Enterprises - 1989 (43) E.L.T. 214 (S.C.)
6. Hindustan Tools & Forgings v. Collector of Central Excise - 1990 (48) E.L.T. 530 (Tri.)
7. A.P. State Electricity Board v. Collector of Central Excise -1994 (70) E.L.T. 3 (S.C.)
8. Jyoti Laboratories v. Collector of Central Excise, Cochin -1994 (72) E.L.T. 669 The ld. Counsel also referred to the Chandigarh Collectorate Trade Notice No. 39/89-C.E., dated 28-4-1989. By this Trade Notice, it has been clarified that glues, pastes, gums are similar types of adhesives derived from duty paid starch, dextrine etc. which are captively consumed in a cigarette factory for pasting of other articles, would not appropriately come within the meaning of 'goods' for the purpose of levy of excise duty.
8. Ld. JDR Shri Somesh Arora vehemently argued the case and attempted to support the view taken by the department in as much as that once the tariff specifies any item then it is deemed to be goods and that they are also marketable. The converse to show that it is not, will be on the assessee and the burden shifts and as the burden has not been discharged by the assessee, therefore, it has to be held that the goods are dutiable and marketable. In this context, he has also relied on the ruling rendered in the case of Union of India v. Bata India Ltd. as reported in 1993 (68) E.L.T. 756.
9. We have carefully considered the submissions made by both the sides and have perused the citations referred to before us. It is well settled that the burden to show that the product is marketable and that they are goods and dutiable is on the revenue. The ld. JDR has argued that this burden gets shifted on the assessee if the product is mentioned in the Tariff Schedule. We are not impressed with this plea. The burden never shifts in the case of classification. It is always on the revenue to show that the item mentioned in the Schedule is marketable and that they are goods The Hon'ble Supreme Court has clearly clarified in Bhor Industries' case that simply because the certain article falls within the Schedule, it does not per se become dutiable under excise law, if the said article is not "goods" known to the market. It has also been held relying on the earlier decisions of the Supreme Court that marketability, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985. The ld. JDR relied on the ruling in the case of Union of India v. Bata India Ltd. by Hon'ble Calcutta High Court. This ruling is clearly distinguishable for the reason that in the first instance this ruling has not taken into consideration the various judgments delivered by the Hon'ble Supreme Court as noted herein and furthermore that even on facts, the item was being utilised by the assessee themselves and therefore, in that context, the Hon'ble High Court had held that the plea that the item does not have market, is not acceptable. This view is also confirmed by the Supreme Court in the case of A.P. State Electricity Board, wherein the Supreme Court found that the marketability does not depend upon the number of purchasers nor is the market confined to territorial limits of India. This is not a situation in the present case. The appellants have stated that their product is not casein as classifiable under Heading 35.01 and it does not have a shelf life as it is not marketable. Therefore, the burden was on the revenue to show that the product is casein and it is known in the market and that it has got shelf life. This initial burden has not been discharged by the revenue. In case if the revenue had placed some material then the burden shifts on the assessee and that the argument of the JDR will have force. As the Revenue has not placed any evidence, therefore, it can be said that the initial burden has not been discharged by the department. The department has also issued Trade Notice as pointed out by the ld. Advocate that this type of product is not considered as 'goods'. Therefore, we have to take note of this tariff notice as well. In a similar matter coming up before us as in the case of CCE v. Binny Ltd. (B & C Milts) as per Final Order No. 244/94-C, dated 6th Sept 1994, the Tribunal rejected the revenue's appeal and has held that the department did not produce any evidence of marketability of the material in question and in that event, the Tribunal has held that the department's case remains unsubstantiated. In that event of the matter, we uphold the appellant's contention and set aside the impugned order by allowing this appeal.
S.K. Bhatnagar, Vice President
10. With due respects to Hon'ble Member (J), my views and orders are as follows :-
11. I observe that the Ld. DR's arguments have a lot of force. Heading No. 35.01 includes casein glues therefore the presumption, if any, could only be that casein glues were a marketable commodity that is why they have been included in this tariff which is a Schedule of excisable commodities. Hence, I agree with the departmental view that in case of items specifically mentioned by name or description the onus would shift on to the other side to show that it was not a marketable commodity. The fact that the assessee is not selling but using himself does not by itself indicate that it was not marketable.
12. It was certainly open to the appellant to show that the way he makes the product or the form in which he makes it, it does not have a shelf life or is not marketable. But no evidence to that effect has been produced before us.
13. The Board Circular No. 39/89, dated 28-4-1989 referred to by Ld. Counsel does not help their cause as its application cannot be generalised. In case where it could be shown that the material produced was not marketable certainly it cannot be considered as goods but where there is a specific entry the contention has to be proved. But the appellant has not produced any evidence in this regard.
14. In this connection, I also observe that Chemical Examiner's Report has not been supplied to the appellant and therefore the appellants are justified in pleading that there was denial of principles of natural justice. At the same time I note that the Chemical Examiner's Report has also not been filed before us and therefore the question basically involved in this case relating to shelf life cannot be finalised. There is no other material before us to be able to record a specific finding.
15. It was however, the primary duty of the adjudicating authorities below to look into these aspects but neither the A.C. nor the Collector (Appeals) have reproduced the Chemical Examiner's Report; Nor they have given a copy to the other side.
16. I therefore, set aside the impugned orders on the ground of violation of principles of natural justice and remand the matter to the A.C. for de novo consideration in accordance with law with the direction that he should immediately supply a copy of the Chemical Examiner's Report and if necessary refer the matter again to Chemical Examiner for his observations regarding shelf life and grant a personal hearing to the appellant before deciding the matter.
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S.K. Bhatnagar
Dated : 21-11-1994 (Vice President)
17. In view of difference of opinion between Hon'ble Member (J) and the Vice President, the matter is submitted to the Hon'ble President for reference to a third Member on the following point :-
1. Whether in the facts and circumstances of the case, the matter was required to be remanded in view of violation of principles of natural justice or otherwise; Or the department's case could be considered as unsubstantiated and the appeal accepted straightaway?
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S.L. Peeran S.K. Bhatnagar
Dated: 21-11-1994 Member (J) (Vice President)
G.A. Brahma Deva, Member (J)
18. Since there has been difference of opinion in between Hon'ble Member (Judicial) and Hon'ble Vice President, following point is referred to me by the Hon'ble President for third Member's opinion :-
"Whether in the facts and circumstances of the case, the matter was required to be remanded in view of violation of principles of natural justice or otherwise; or the Department's case could be considered as unsubstantiated and the appeal accepted straightaway?
19. Heard both sides with reference to the above point of difference. Referring to the findings given by the Hon'ble Vice President it was submitted by Shri C. Chidambaram, learned Consultant that though there was denial of principles of natural justice inasmuch as copy of the Chemical Examiner's report has not been supplied to the appellants but the purpose would not be served in remanding the matter in view of the observation made by the Collector (Appeals) in his order that Chemical Examiner's report does not specifically state that these goods are stable or unstable for any specified period of time. Therefore, the non-communication of chemical examiner's report is not denial of natural justice because the report is silent on the issue raised by the appellants. Further he said that two show cause notices dated 10-8-1987 and 13-10-1987 were issued for the period 10-2-1987 to 30-6-1987 and for the period 1-7-1987 to 31-8-1987 respectively and sample was sent for test on 4-12-1987. He said that result of test could have only prospective application but not retrospectively relying upon the decision of the Tribunal in the case of Pattani Chemicals v. Collector of Central Excise, reported in 1991 (56) E.L.T. 253. He stated that excisability is subject to marketability of the same as it was specifically held by the Supreme Court in the case of Bhor Industries Ltd. v. Collector of Central Excise - 1989 (40) E.L.T. 280 (SC) as well as in the case of Collector of Central Excise v. Ambalal Sarabhai Enterprises, reported in 1989 (43) E.L.T. 214 (S.C.) and these two decisions were not taken note of by the Calcutta High Court in the case of Union of India v. Bata India Ltd., 1993 (68) E.L.T. (756) while deciding the issue that burden lies on the party to prove the marketability. Hence, burden cannot be shifted on the assessee to prove that item was not a marketable commodity. He said that Hon'ble Supreme Court has been consistently taking the view that marketability of a product is a pre-requisite of 'sine qua non' for levy of duty and referred to the latest decision of the Supreme Court in the case of Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta and Ors., reported in 1994 (55) ECR 20 (S.C.) and he also referred to the decision of the Tribunal in the case of Apar Limited v. Collector of Central Excise, Ahme-dabad, reported in 1994 (54) ECR 616 (Tribunal) wherein it was held that onus is on the Department to prove that the goods are marketable observing that "it was incumbent upon the department to establish on the basis of proper evidence that 'Coating Solution' in question was known to the market and it was capable of being marketed. No effort having been made at all by the Department to enquire into this essential requirement, we hold that the Collector's order in regard to the excisability and classification of the disputed goods is not sustainable since it is not reasoned and shows non-application of mind."
20. Arguing for the Revenue Shri Sharad Bhansali, learned SDR submitted that he has no quarrel with the proposition that excisability is subject to marketability but the point to be considered in this case is whether burden of proof of marketability lies always on the Department. He said that Hon'ble Supreme Court in the case of Bhor Industries has held that an article is not liable to excise merely because the same is specified in the Tariff Schedule unless it is "goods" known to the market, but it has not laid down ratio to suggest that burden of proving marketability is always on the Department. In that case it has shifted the burden on the Department in view of the fact that Appellate Collector held that subject goods were not marketable. Shri Bansali contended that the burden of proving marketability may be either on Department or on Assessee and need not be always on the Department since the question of onus relates to the merits of the case and burden of proof is shifting phenomenon referring to the decisions in the case of Shalimar Paints Ltd. v. Collector of Central Excise, Calcutta 1994 (70) E.L.T. 567 (Cal.) and in the case of Naffar Chandra Jute Mills Ltd. v. Assistant Collector of Central Excise, reported in 1993 (66) E.L.T. 574 (Cal.). He said that where the goods find place as items in the Schedule of the Act, the presumption shall be that the goods are excisable goods and burden of proving otherwise shifts to the Assessee. The decision of Calcutta High Court in the case of Bata India Ltd., (supra) is directly on this point and the reasoning given by the Hon'ble Member (Judicial) that the case is distinguishable on the ground that goods were captively consumed in that case is not correct since marketability has to be determined whether goods were captively consumed or otherwise. In reply, Shri Chindambaram submitted that in the case of Bata India Ltd. it is clear from the findings that party themselves had admitted that goods were marketable but in the present case since beginning the party has taken the plea that goods were neither marketed nor marketable as such.
21. I have gone through the respective opinions given by my learned Brothers and have considered the submissions made by both sides with reference to the point of difference. There is no dispute with the proposition that product is excisable subject to marketability but the point to be considered in this case is whether burden of proving marketability lies on the Department or on the Assessee as it was rightly pointed out by the Departmental Representative. In the case of Bhor Industries, Supreme Court observed that simply because a certain article falls within the Schedule, it would not be dutiable under 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. This view was reaffirmed by the Supreme Court in the case of Ambalal Sarabhai Enterprises wherein it was observed that test of marketability should be satisfied even in respect of transient item which is captively consumed in the manufacture of other finished products and in particular the marketability is an essential ingredient in order to be dutiable under the Schedule to the Central Excise Act. 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 has also been held that though actual sale is not necessary, evidence must be produced by the Department that the goods, in fact, are capable of being marketed. It is clear from these two decisions that burden lies on the department to prove marketability. Supreme Court has been consistently taking the view that marketability of a product is a pre-requisite or 'sine qua non' for levy of duty starting from Bhor Industries and even in the recent cases referred to above. It is well settled position that burden lies on the Department to prove excisability as well as classification of the product and similarly burden lies on the Assessee to prove exemption. Since the marketability is an essential ingredient of excisability it is not just correct to ask the party to prove marketability. Mere fact that goods do find place in the Tariff cannot be presumed that it was a marketable commodity and it is for the Department to prove that it was marketed and party cannot be asked to prove negative. Since Department has not produced any evidence in this case to show that item, as such, was marketed or marketable, Department's case remains unsubstantiated as it was observed by the Hon'ble Member 0udicial) and, accordingly, the view expressed by him is concurred with.
22. The case file is returned to the Original Bench to pass an appropriate order.
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G.A. Brahma Deva Member (J) FINAL ORDER In view of the majority of opinion the department's case has remained unsubstantitated. The impugned order is therefore, set aside and the appeal is allowed.