Customs, Excise and Gold Tribunal - Delhi
Sarabhai M. Chemicals vs Collector Of Central Excise on 9 April, 1996
Equivalent citations: 1996(86)ELT342(TRI-DEL)
ORDER G.R. Sharma, Member (T)
1. This appeal is directed against the order of Collector of Central Excise & Customs, Baroda. The Collector in his order concluded that Crude Sorbitol Captively consumed in continuous process by the appellants is marketed and excisable goods and thus chargeable to duty under Heading 38.23 of the Central Excise Tariff Act, 1985. The Collector however dropped the entire demand holding that the demand was time-barred under Section 11A of the Central Excises & Salt Act, 1944.
2. The facts of the case in brief are that the appellants are engaged in the manufacture of Ascorbic Acid (Vitamin C). In the manufacture of Ascorbic Acid Crude Sorbitol comes into existence as intermediate product which is captively consumed for further manufacture of Vitamin C. It was alleged that Crude Sorbitol was cleared without payment of duty during the period 2-4-1986 to 31-5-1987. Ascorbic Acid was exempt under Notification 217/86-C.E., dated 2-4-1986 and therefore Crude Sorbitol was liable to pay duty at the rate of 15% ad valorem. It was alleged that duty amounting to Rs. 13,55,995.65 was payable on the Crude Sorbitol captively consumed during the period 2-4-1986 to 31-5-1987. Accordingly a show cause notice was issued on 5-10-1990 asking them to show cause as to why the duty amounting to Rs. 13,55,995.65 should not be recovered from them under proviso to Sub-section (1) of Section 11A of the Central Excises & Salt Act read with Rule 9(2) of the Central Excise Rules.
3. Shri Willingon Christian, learned Counsel appearing for the appellants submitted that the product is Crude Sorbitol 40% which was a transient product in the form of impure aqueous solution occurring in the process of manufacture of Vitamin C : that this product was described as Crude Sorbitol as concentration was 40%; that Crude Sorbitol was never sold in the market because it was not Sorbitol; that the product contains various impurities such as organic acids, Gluconnates, residual colour impurities, several cations, anions and other unidentified impurities. It is unstable having a very limited shelf life of a few days. It does not have essential characteristics of Sorbitol as regards the appearance, clarity, colour, density, and specific. It is thus not marketable and fit for acceptance in the trade. It was unstable because it got infested with micro-organism; that if concentration of Sorbitol gets reduced it cannot be used in food, confectionary of pharmaceutical industry; it has shelf life of a few days only. In support of his contention the learned Counsel placed reliance on certain technical authorities Third Edition by Faith and Keyes and Clark John Wiley and Sons, New York (page 130/131), Kirk Othemer Encyclopaedia of Chemical Technology, Third edition, Vol-I. Test report of 24-2-1988 of Head Analytical Department Sorbitol Research Centre, Letter dated 18-1-1988 from Alembic Chemical Works Co. Ltd., Affidavit dated 23-2-1988 of Shri Lalit Janardhan Parikh, Affidavit dated 23-2-1988 of Shri Bhaskar Har Bhide, Professor of Organic Chemistry and Affidavit of Shri Kirit Harilal Shah, businessman; that their contention that Crude Sorbitol is not marketable is supported by common trade parlance. The learned Counsel referred to the affidavits of three professors and letters from a Drug manufacturer, a trader and a consumer and relied on them.
4. The learned Counsel submitted that prime burden of proving that the goods are marketable was on the department which the department had not discharged. The learned Counsel in support of his contention relied upon judgments of the Apex Court in the case of Bhor Industries Ltd. reported in 1989 (40) E.L.T. 280 (S.C.) and of Ambalal Sambhai Enterprises reported in 1989 (40) E.L.T. 214 (S.C.).
5. The learned Counsel submitted that classification list in respect of the product was submitted to the department and was approved taking impugned item to be non-excisable; that assessments were provisional before that and were finalised with the approval of the classification list; that approved classification list cannot be reopened by circumventing the provisions of Rule 173B(5) and Section 35E of the Central Excises and Salt Act; that RT 12 returns were finally assessed.
6. The learned Counsel submitted that the goods produced or manufactured by the appellants though specified in Tariff Schedule do become dutiable only when they are marketable. In support of his contention the learned Counsel relied upon and cited the Hon'ble Supreme Court's judgment in the case of Moti Laminates Pvt. Ltd. reported in 1995 (76) E.L.T. 241 (S.C.).
7. Test to be applied even to transient items captively consumed in the manufacture of finished products is marketability before levy of duty. In support of this contention the learned Counsel cited and relied upon the decision of the Hon'ble Karnataka High Court is the case of Cipla Limited v. Union of India reported in 1990 (46) E.L.T. 240.
8. On the marketability aspect of argument the learned Counsel cited and relied upon the decision of the Tribunal in the case of Indian Textile Paper Tube Company reported in 1995 (26) ETR 121. He also referred to the Board's Circular dated 2-9-1988 on the question of marketability of the goods.
9. Shri A.K. Madan, learned SDR appearing for the respondent Collector submitted that the chemical examiner's report shows that Crude Sorbitol was well defined organic chemical and that it is neither purified nor is required to be purified. The chemical examiner also opined that it has shelf life of about 2 weeks. The learned SDR therefore, submitted that from the chemical examiner's report it is clear that Crude Sorbitol is well defined organic chemical, has shelf life which may be two weeks. He submitted that if Crude Sorbitol is not classifiable under Chapter Heading 29.05 it would be classifiable under Chapter Heading 39.23 in as much as in Explanatory Note B(5) the product of the composition and description of Crude Sorbitol obtained by the identical process has been included in the said sub-heading. Chapter Heading 38.23 of the Central Excise Tariff is identical with HSN Heading 38.23; that Explanatory Notes of HSN have a great pursuasive value; that potential marketability and not the actual sale is the criterian for treating the goods excisable. In support of this contention the learned SDR referred to the Para 7 of the Hon'ble Supreme Court judgment in the case of Plasmac Machine Manufacturing Co. Pvt. Ltd. reported in 1991 (51) E.L.T. 161 (S.C.); that the Tribunal in the case of Dunlop India reported in 1989 (41) E.L.T. 504 held that the marketability cannot be doubted when the product served a well-defined and known purpose; that in the matter of classification and marketability of various products the judgment in respect of one product cannot be applied to a judgment in respect of another product and that each product has to be considered, on its own merit. In regard to affidavit the learned SDR submitted that they do not exactly refute the evidences of HSN etc.
10. Heard the submissions of both sides. On careful consideration we find that short point for determination is whether Crude Sorbitol is marketable and thus dutiable. For this, let us examine the case law cited and relied upon.
11. In the case of Union Carbide India Ltd. cited (supra) the Apex Court had held that :-
It does seem to us that in order to attract excise duty the article manufactured must be capable of sale to a consumer. Entry 84 of List I of Schedule VII of the Constitution specifically speaks of "duties of excise on tobacco and other goods manufactured or produced in India ...", and it is now well accepted that excise duty is an indirect tax, in which the burden of the imposition is passed on to the ultimate consumer. In that context, the expression "goods manufactured or produced" must refer to articles which are capable of being sold to a consumer. In Union of India v. Delhi Cloth & General Mills -1963 Supp. 1 S.C.R. 585, this Court considered the meaning of the expression "goods" for the purposes of the Central Excises and Salt Act, 1944 and observed that "to become 'goods' an article must be something which can ordinarily come to the market to be brought and sold", a definition which was reiterated by this Court in South Bihar Sugar Mills Ltd., etc. v. Union of India and Ors. - (1968) 3 S.C.R. 21.
12. The Apex Court in the case of Bhor Industries Ltd. in para 6 of the judgment referred to the decision in the case of Union Carbide India Limited and held that expression "goods manufactured or produced" must refer to the goods which are capable of being sold to the consumer. In the case of Union of India v. Delhi Cloth & General Mills reported in 1977 (1) E.L.T. (J 199) considered the meaning of the expression 'goods' for the purpose of Central Excises and Salt Act, 1944 and observed that "to become goods an article must be something which can ordinarily come to the market to be bought and sold.
13. The other question that was agitated before us was bringing in evidence that the goods were marketable and had a shelf life. In the case of Ambalal Sarabhai Enterprises reported in 1989 (43) E.L.T. 214 (S.C.) we find that these aspects were considered by the Apex Court in para 5 of their observations. We find that the Apex Court had held that :-
"But we are concerned with the question whether actual goods in question were marketed or, in other words, if not, whether these are marketable or not. It is true that the goods with unstable character can be theoretically marketable if there was a market of such transient type of articles which are goods. But one has to take a practical approach. The assessee produced evidence in the form of affidavit. One Shri Khandor, who filed an affidavit in support of the case of the respondent, had stated in his affidavit that completely hydrolysed starch would start fermenting and decomposing and at higher concentration it would start crystallizing out within two or three days. This is evidence indicating propensity of its not being marketed. It is good evidence to come to this conclusion that it would unlikely to be marketed as it was highly unstable. There was evidence as noted by the Tribunal that it has not been marketed by anyone. There is also an admission of the Superintendent of the appellant that no enquiry whatsoever was conducted by the department as to whether starch hydrolysate was ever marketed by anybody. It was pointed out by the revenue that even according to the respondent, it stored starch hydrolysate in tanks before transporting it through pipes but according to the appellant, the storage of starch hydrolysate was only for a period of a few hours only as a step in the process of transfer thereof to Sorbitol. It, therefore, appears to us that there was substantial evidence that having regard to the nature of the goods that this was unlikely that the goods in question were marketable. This should be judged in the background of the evidence that the goods have not been marketed in a pragmatic manner. All this again would have to be judged in the light of the fact that revenue has not adduced any evidence whatsoever though asked to do so. It was pointed out that if the department was to charge duty of excise on this starch hydrolysate as one form of glucose it would be the burden on the department to establish that starch hydrolysate was not merely marketable but was being marketed as glucose in some form. This would be so since what is liable for duty under Item IE is glucose in any form and, therefore, in order to demand duty under that Section, the department must establish that the product on which duty was demanded was known in the market as glucose in one form or the other. There is no such evidence as observed by the Tribunal. The Tribunal noted and, in our opinion, rightly that revenue cannot be said to have discharged its burden of establishing that by applying the process of hydrolysis to starch for production of starch hydrolysate the respondent manufactures any excisable goods in the sense of being goods known in the market and being marketed or marketable. Our attention was drawn to the affidavit of Shri P.D. Khandor, Chemist, who was a Food Technologist and was holding a degree of B.Sc. (Chemistry). He stated in his affidavit as follows :-
"I have seen the starch hydrolysate made by Sarabhai M. Chemicals. It is completely hydrolysed starch. It appears as aqueous syrup containing about 66-71% reducing sugars expressed as Dextrose. It is neither glucose or dextrose in any form nor glucose in liquid state nor liquid glucose. In order to find out the market for completely hydrolysed starch as is made in Sarabhai M. Chemicals, at their instance, I had made trade inquiries. However there is no market for such substance. Since it can act only as an intermediate product for the manufacture of Sorbitol, Dextrose or Glucose and Fructose and every manufacturer of Glucose, Dextrose, Sorbitol and Fructose would have his own plant for hydrolysing starch, it is commercially not a viable proposition for the manufacturers of Glucose, Dextrose, Sorbitol or Fructose or the persons undertaking the process of hydrolysing starch either to purchase completely hydrolysed starch from the market or sell or undertake process of hydrolysing starch for the purpose of sale in the market, because at lower concentration, . starch which is completely hydrolysed would start fermenting and decomposing. At higher concentration, it would start crystallising out within two or three days."
16. If we examine the evidence in the present case we find that the appellants produced affidavits of professors and letters from various authorities. We find that the appellants produced technical literature that Crude Sorbitol is not finished product but merely transient product. It arises in the continuous process of production of commercial pure Sorbitol, on the basis of Book of Industrial Chemical, third edition of W.L. Faith, Donald B. Keyes and Ronald L. Clark and on the basis of Encyclopaedia of Chemical Technology of Kirk-Othmer. The appellants also produced affidavits from Dr. Lalit Janardhan Parikh stating that there are two categories only namely 70% Sorbitol Solution and Crystalline Sorbitol which are available in the market. By producing affidavit of Shri Kirit Harilal Shah, the appellants wanted to show that Crude Sorbitol cannot be sold in the market as marketable commodity unless all the undesirable characteristics and impurities are removed. The appellants also produced a letter of M/s. Alembic Chemical Works Co. Ltd. who manufactured 70% Sorbitol stating that such practice of selling dilute solutions of Sorbitol is not existent in the country. Against this evidence produced by the appellants we find that the department has sought to classify Crude Sorbitol as goods for the purpose of Central Excise duty but to substantiate this they have not adduced any evidence to show that Crude Sorbitol is brought to the market for the purpose of sale and purchase. In the absence of this evidence we hold that Crude Sorbitol coming into existence in the process of manufacture of Ascorbic Acid is not marketed.
17. The question of marketability was again examined by the Apex Court in the case of Indian Cable Company Limited, Calcutta reported in 1994 (4) E.L.T. 437 (S.C.) in this judgment the Apex Court in para 7 of their judgment had held that :-
"We are of the view that the provisions of the Act mandate that a finding that the goods are marketable as a prerequisite or "sine qua non" for the levy of duty. Section 3 of the Act is the charging section :
" Section 3. Duties, specified in the Schedule to the Central Excise Tariff Act, 1985 to be levied. There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the Schedule to the Central Excise Tariff Act, 1985 ... ".
Section 2(d) defines "excisable goods". We have quoted the definition in para 5 supra. The word "goods" is not defined in the Act.
After advertising to the aforesaid definition of "excisable goods" and the meaning of the word "goods", a Constitution Bench of the Supreme Court in Union of India v. Delhi Cloth and General Mitts, AIR 1963 SC 791, at page 795, stated in paragraph 17 thus :
" These definitions make it clear that to become 'goods' an article must be something which can ordinarily come to the market to be bought and sold."
In a series of decisions, this Court has held that "marketability" is an essential ingredient, to hold that an article is dutiable or exigible to duty of excise. The important decisions of this Court which have laid down the law on this aspect, are the following:
(1) Union of India v. Delhi Cloth & General Mills Company Limited - AIR 1963 SC 791.
(2) South Bihar Sugar Mills v. Union of India - AIR 1966 SC 928 : 1968 (3) SCR 21.
(3) Bhor Industries v. Collector - (1989) 1 SCC 602.
(4) Hindustan Polymers v. Collector -1989 (43) E.L.T. 165 (SC).
(5) Collector of Central Excise v. Ambalal Sarabhai - JT 1989 (3) SC 341.
(6) Union Carbide v. Union of India - 1986 (SC) JT 453.
(7) A.P. Electricity Board v. Collector of Central Excise JT 1994 (1) SC 545.
In the latest decision in A.P. Electricity Board v. Collector of Central Excise, Hyderabad, [JT 1994 (1) SC 545], one of use (B.P. Jeevan Reddy, J) speaking for the Bench succinctly stated the law thus at pages 549 and 550 :
"...Marketability is an essential ingredient in order to dutiable under the Schedule to the Act ... . The 'marketability' is thus essentially a question of fact to be decided in the facts of each case. There can be no generalisation. The fact that the goods are not in fact marketed is of no relevance. So long as the goods were marketable, they are goods,for the purposes of Section 3. It is not also necessary that the goods in question should be generally available in the market. Even if the goods are available from only one source or from a specified market, it makes no difference so long as they are available for purchasers ... . The marketability of articles does not depend upon the number of purchasers nor is the market confined to the territorial limits of this country."
"Marketability" is a decisive test for dutiability. It only means "saleable", or "suitable for sale". It need not be in fact, "marketed." The article should be, curable of being sold or being sold, to consumers in the market, as it is without any thing more. The Appellate Tribunal has not adverted to the above vital aspects not has it entered a finding that the PVC compound (granules) is a "marketable product" as understood in law. The Appellate Tribunal was swayed by the fact that the conversion of PVC resin into PVC compound by the process employed by the appellants amounts to "manufacture" within the meaning of Section 2(f) of the Act and that by itself will justify the levy of duty. In our view, this is a palpable error committed by the Tribunal. In the absence of a finding, that the goods are "marketable" i.e. saleable or suitable for sale, we hold that the order of the Appellate Tribunal is infirm. It should be set aside and we hereby do so. We order a remit of the matter to the Appellate Tribunal to consider the appeal afresh and dispose of the same in accordance With law. There shall be no order as to costs in this appeal."
18. The question of marketability coupled with question of discharging of onus was considered by the Apex Court in the case of Porritts & Spencer reported in 1995 (58) ECR 821 (SC) in which the Apex Court had observed that "Admittedly, even according to the revenue the manufacturer of felts was monopoly item and the process of manufacture was to use cotton and nylon strands folded together and thereafter process the multifold yarn in the manufacture of felts. Every change does not necessarily fall within the expression 'manufacture' unless it is shown that the process has brought into existence a new product having a distinct identity in the commercial world. In the absence of any evidence in that behalf which the revenue ought to have laid, we find difficult to come to the conclusion that excisable goods as came into existence by the treatment of cotton and nylon into a multifold yarn. For arriving at this decision the Apex Court relied on their decision in the case Union Carbide India Ltd. and Delhi Cloth & General Mills Ltd.
19. On examination of the above rulings we find that onus was on the Revenue to prove that the Crude Sorbitol was marketable which onus, has not been discharged by the Revenue. Inspite of the fact that the appellants had produced letters from dealers showing that Crude Sorbitol is not marketable.
20. In the case of Moti Laminates Pvt. Ltd. reported in 1995 (75) E.L.T. 241 (SC) the Apex Court held that :-
"Section 3 levies duty on all excisable goods mentioned in the Schedule provided they are produced and manufactured. Therefore, where the goods are specified in the Schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were 'produced or manufactured'. It has further been explained by this court to mean that the goods so produced must satisfy the test of marketability. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed."
21. In the case of Cipla Limited reported in 1990 (46) E.L.T. 240 (Kar.) the Hon'ble Karnataka High Court had held that :-
"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. In particular, the Supreme Court has held that marketability is an essential ingredient in order that an article be dutiable under the Schedule to the Central Excises and Salt Act and also under the Tariff Act, 1985. 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 would be necessary to find out whether the goods in dispute are articles known in the market as separate, distinct and identifiable commodities. 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 marketable. The facts are uncontroverted in the instant case i.e. that 'EMS' is not a drug which is known in the trace as a marketable commodity, it has no separate existence of its own as 'goods' to attract duty of excise and that it is only a bulk drug intermediate which goes into the manufacture of the finished product, namely Salbutamol Sulphate. 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. No useful purpose will be served by remanding the matter again to the adjudicating authority. The impugned order is, therefore, quashed and the department is directed to refund the duty paid by the petitioner on the value of "BMS". AIR 1963 SC 791, relied on]."
22. From the analysis of the judgments reproduced parts of which have been reproduced in the preceding paragraphs we find that for being dutiable product must be goods, for being goods the product must be marketable. We have also discussed the ruling of the Apex Court as to who is to discharge the onus that the goods are marketable. We have also referred to the ruling of the Hon'ble Supreme Court wherein it has been held that the onus is on the department in as much as duty is demanded by the department. We have also observed that the appellants had produced affidavits from the experts that Crude Sorbitol does not have a long shelf life and was not marketable. We also find that the appellants had produced letters from trade manufacturers of Sorbitol as well as user of Sorbitol stating that Crude Sorbitol is not marketed. As against this the department has only relied upon the report of Chemical Examiners and HSN Notes, Report of Chemical Examiner and HSN only indicates Crude Sorbitol comes into existence and that it is stable product and can last even for about two weeks. But no evidence has been produced by the department to prove that Crude Sorbitol was marketable. In the absence of such evidence we follow rulings of the Apex Court and hold that the Crude Sorbitol is not goods.
23. In view of the above finding that portion of the order of the Collector of Central Excise & Customs which holds that Crude Sorbitol is goods and is dutiable is set aside and the appeal is allowed.