Customs, Excise and Gold Tribunal - Mumbai
Camlin Ltd. vs Commissioner Of Central Excise on 12 April, 1999
Equivalent citations: 1999ECR492(TRI.-MUMBAI), 1999(110)ELT965(TRI-MUMBAI)
ORDER G.N. Srinivasan, Member (J)
1. This is an appeal filed against the decision of Commissioner of Central Excise, Mumbai IV made in Order-in-Original No. 16/97, dated 24-11-1997 whereunder the Commissioner had held that product called Crayplas Compound which is manufactured by the appellants is marketable and liable to duty of Central Excise under subheading 3204.19 and he demanded a payment of duty of Rs. 35,17,492.63 and levied a penalty of Rs. 10 lakhs.
2. The appellants are engaged inter alia in the manufacture of plastic crayons which are marketed under the brand name of "Crayplas" and for this purpose, they filed classification lists. In the course of manufacture of plastic crayons, a substance of plastic crayons in lump form emerges which they called it as "Crayplas Compound" which is an unprocessed material, in the main stream of production of plastic crayons. The process of plastic crayons is described in the statement of facts. In the year 1988, the appellants sent wax crayons for finishing on job work basis and that before adopting this procedure, the appellants approached excise authorities by their letter dated 6-6-1988 and applied for permission under Rule 56B for sending the same for job work.
3. The Excise authorities by their letter dated 12-8-1988 clarified that as the end product was exempted, the movement of wax crayons in an unfinished form from one factory to another needed no permission. From October, 1988 onwards production of plastic crayons was announced and a classification list No. 2/88-89, dated 28-1-1988 was filed. In 1991 again the appellants approached the Central Excise authorities for permission for sending the unfinished pencils from their Tarapur factory to job work. Again Excise authorities informed that no permission was required by its letter dated 19-9-1991. Thereafter they again sent the unfinished goods viz. Crayplas Compound for moulding to a nearby SSI unit on job work basis. It is vehemently stated by the appellants that from 1988 onwards the department knew about this process and the Departmental Officers were visiting from time to time the appellant's factory premises and fully aware of the fact about the existence of appellant sending the Crayplas Compound to the nearby SSI unit for making such unfinished product into a finished form. The appellants did not avail of Modvat credit which were exclusively used in the manufacture of a plastic crayon and they had reversed proportionate Modvat credit availed in respect of common inputs used in the said product plastic crayons and had been sending such details to the department through their RT 12 returns. By way of abundant caution, it is stated by the appellants classification list No. 6/94-95 dated 4th April, 1994 was filed by the appellants and it is still pending for approval. A surprise visit made on 10-5-1995 by the Excise Officers who recorded the statements of the appellant's employees regarding manufacture of plastic crayons. Officers detained the stock of in-process material i.e plastic crayons in square, flat, lump form lying in the factory at the time of their visit as also the stock lying with the appellant's job worker and also seized the records relating to the production and despatch of material to the job worker.
4. On 31-3-1995 a Show Cause Notice was issued to the appellants allying that the manufacture and clearance of "Crayplas Compound" without payment of duty and without following the required procedures and directing the appellants to Show Cause as to why Central Excise duty on clearances of crayplas compound for the period from 1-4-1990 to 28-2-1995 amounting to Rs. 35,17,492.63 should not be recovered. By their letters dated 6-4-1995,19-4-1995, 27-4-1995 and 21-8-1995 appellants requested inspection of seized records. And by the appellant's letter dated 29-2-1996 a reply was made. In the reply the facts mentioned above were brought out and it was further stated by the advocate on behalf of the appellants that as the intention of the Government that final product is exempted the parts of the exempted product is also exempted. They also refer to various notifications viz. Notification 83/90, Notification 77/99-C.E., etc. regarding exemption granted to parts of ball point pens, refills and parts of pencils including clutch pencils under. In the said letter the appellants also contended that the crayplas compound is not marketable, and as such question of levy of duty on the product is not legal and tenable. They also contended that the decision of the Tribunal in Luxor Pen Co.'s case - 1994 (70) E.L.T. 294 is not applicable to the facts of this case as the instant product in question does not have any marketability. The Assessing authority by the impugned order rejected the contentions of the appellants and held that the very fact that the identical product was imported for manufacture of crayons will indicate that such crayplas compound are held to have been marketed. The authority had held that letters produced by the assessee were from local dealers. It has been specifically held by the adjudicating authority that identical goods are being bought and sold in the international trade, it did not think it necessary to establish the marketability of the product further with reference to the domestic trade. If Luxor Pen Co. can import such compound from abroad, such compound can also be offered for sale provided they can be supplied by the manufacturers here. As far as the limitation is concerned, he relies on the statement of Shri Sathe, General Manager (Admn.). The authorities therefore, held that the duty is to be levied and he levied duty as well as penalty as stated above. Hence the present appeal.
2. The ld. Counsel Shri M.H. Patil, along with Shri Arun Mehta argued that the crayplas compound is not marketable. Being a proprietary formulation it is not ordinarily bought and sold in the market and hence not at all available in the market. It is marketed in 12 and 15 assorted shades. In Luxor Pen Co.'s case the import was LDPE powder chips and square blocks and lumps in the instant case it is crayons in rectangular shape. The relationship between the foreign seller and the importer Luxor Pen Co. is not known and the legality of the transaction is also not known. It is emphasised by Mr. Patil, to be marketable it should ordinarily be given to the market for being bought and sold, irrespective of the fact whether it is marketable or not. He referred to various judgments of Supreme Court viz. (i) U.O.I. v. Delhi Cloth and General Mills Co. Ltd. and Ors. -1977 (1) E.L.T. (J199) (ii) Union Carbide India Ltd. v. U.O.I. -1986 (24) E.L.T. 169 (Paras 5 & 7) (hi) Geep Industries Syndicate Ltd. v. Central Govt, and Ors. -1987 (31) E.L.T. 865 (iv) Bhor Industries Ltd. v. C.C.E. -1989 (40) E.L.T. 280 (Para 7) (v) C.C.E. v. Ambalal Sarabhai Enterprises -1989 (43) E.L.T. 214 (the counsel invited our attention to this case for the proposition that the burden is on the department to prove that the goods were marketable against liability of duty) (vi) A.P. State Electricity Board's case 1984 (70) E.L.T. 3 (vii) Moti Laminates Pvt. Ltd. v. C.C.E. -1995 (76) E.L.T. 241 (para 7) (viii) U.O.I. v. Indian Aluminium Co. Ltd. -1995 (77) E.L.T. 268 and (ix) Delhi Cloth Mills case 1997 (92) E.L.T. 315. The ld. Counsel also stated that as far as question of marketability is concerned it is for the department to prove the same. For this purpose he relies on the judgment of Bhor Industries's case, Indian Aluminium Co. Ltd's case 1995 (77) E.L.T. 268 and Nirlon Synthetic Fibres & Chemicals Ltd. v. C.C.E. -1996 (86) E.L.T. 467. They also cited some more cases regarding marketability. As far as Moti Laminates case is concerned especially regarding the observations at paragraph 6 to 10 of the judgment it is always open to assessee to prove that although goods in question in which he is carrying on business were an excisable goods, the same are not marketable. The word "always" is imported as it gives an opportunity to assessee to challenge at any time. In this connection he invited our attention to South India Viscose's case 1995 (78) E.L.T, page 737. In any event it is argued by the ld. Counsel that the decision of the Luxor Pen Co.'s case dealt with only conflicting entries in Chapters 32 and 39 and other appropriate entry of Chapter 96 was not considered and therefore it should be considered as coming under Chapter Heading 96.09. In the event of coming under Chapter 96, rate is applicable only at nil rate of duty therefore entire demand is wrong in law. It is further argued that in any event the demand is barred by limitation as right from 1988 onwards the department was informed of what is happening in the factory viz. how the end product come out. Right from the date the process of manufacture is known to sending of the unfinished Crayplas compound to the job worker and seeking the exemption.
3. Ld. DR in answering the arguments of the ld. Counsel for the appellants, stated that the goods in the unfinished form when they were transferred from the manufacturer to the job worker, would itself showed the goods were marketable. Identical goods were actually imported by Luxor Pen Co. and this evidence could not be repelled by the appellants. No doubt the appellants have filed many affidavits. But that doesn't establish that the goods were not marketable. It only indicates that these goods are not freely available in the market. He cites the case of Calcutta High Court in U.O.I. v. Bata India Ltd. -1993 (68) E.L.T. 756 and also relies on the observation of Supreme Court in Moti Laminates v. C.C.E. (supra) at para 6. It is his contention that these decisions support the preposition that once the goods are mentioned in the Tariff, they are excisable. It is however, open to the assessee to prove that the goods are not marketable and hence not excisable. Upon that, the department has a responsibility to rebut the evidence led by the assessee. The department is not charged with the responsibility of proving the marketability of the goods. In spite of that they have placed on records definite evidence to prove that the goods are marketable. It is the case of department that the department has sufficiently looked into the evidence placed by the appellant. It has been contended specifically by the DR that the judgments of the Tribunal quoted by the ld. Counsel do not dealt with the observation of the Supreme Court in Moti Laminates's case especially in para 6 to 10 of the same. In the instant case there has been direct evidence viz. the identical product has been imported by Luxor Pen Co. Therefore, there has been a discharge of the hundercast on it by the Department, and in view of the decision of the Supreme Court in Moti Laminates case (supra), the marketability has been proved. As far as the classification is concerned it has been argued that it should come under Chapter 90 as they have acquired the essential character of the final product viz. crayons i.e to say the ability to colour paper or only medium. There is a need to go to the subsequent Rules of Interpretation if on applying Rule I which provides that the titles of Sections are provided for easy reference only; for legal purposes, classification should be determined according to the terms of the headings and any relative section or Chapter notes and, do not otherwise require provisions hereinafter contained Chapter notes and section notes are to be considered first and it is not possible to determine classification. Only then other rules are to be resorted to. In any event, the CEGAT judgment in Luxor Pen's case (supra) clearly answers the case in issue. This production has to be treated either as a colour preparation or integrated for colouring preparation. The Madras High Court in Motor Industries case -1992 (62) E.L.T. 13 had held that the goods which require major operations to arrive at the identity of another product cannot be said to have acquired the essential character of the product and does not fall in the ambit of Rule 2(A) of the Interpretative Rules. In the instant case Crayplas compound has to undergo process of extrusion and shaping process which will involve considerable operations. It is in any event the essential feature of the goods is also the shape and size of the goods. Being irregular in shape would not itself stop colouring targeted the product by the users. As far as time bar is concerned there is no intimation other than the classification list filed with the department for crayplas compound. For the period subsequent to filing the classification lists goods have to be treated as provisional as per the Supreme Court decision in Samrat Industries case -1992 (58) E.L.T. 561 and Commissioner had extracted correspondence exchanged between parties to show that the assessee was fully aware of the requirement of obtaining departmental permission under Rule 56B for sending semi finished goods having known this, Collector held that the assessee should have declared it with classification.
5. We have considered the rival submissions. The product in question viz. Crayplas Compound which is an intermediate in process material in the manufacture of plastic crayons. Plastic crayons is manufactured in the following way. Various components such as the plastic powder, paraffin wax hard, oil (as lubricant and solvent) colour pigments (organic and /or inorganic) dispersing agents plasticisers are thoroughly mixed in a jacket of vessel with a stirrer to obtain a homogeneous compound, which is collected in a wooden tray for cooling and settling is cut into small pieces of irregular sizes. These pieces are sent to a small scale unit for converting the same into stick forms on injection moulding machines on a job work basis. As the appellants do not have facility of injecting moulding and the same are returned to appellant's factory for (further packing in boxes) for marketing. The questions is about the levy of duty on crayplas compound is marketable or not and following question will arise for our determination.
(i) Whether crayplas compound is marketable, if so the department or the appellants are to adduce evidence thereof.
(ii) Whether the cray plas compound and intermediate product in unfinished square and having essential character is classifiable under Heading 9609.00 chargeable nil rate of duty as claimed by appellants or under sub-heading 3204.19 chargeable as alleged by the respondent.
(iii) Whether the ratio of the judgment of the Tribunal in Luxor Pen Co. 's case (supra) is applicable in a case where dealt with only 32 and 39 and
(iv) lastly whether the demand is barred by limitation.
6. If we take the first point viz. marketability of crayplas compound it will be noted that the argument of the appellant that crayplas compound is not marketable being a proprietary formulation which is not ordinarily bought and sold in the market and hence not at all available in the market. Crayplas is marketed in 12,15 assorted shades. In the instant case, it is vehemently contended by the appellant that Luxor Pen Co. imported LDPE powder chips and screws in square flats and lumps together to be marketable. They ordinarily come to the market for being bought and sold. As against this the department has invited our attention to the judgment of the Supreme Court in Moti Laminates case -1995 (76) E.L.T. 241 especially para 6 to 10 thereof at page 246 it is held:
"6. The duty of excise is leviable under Entry 84 of List I of the Vllth Schedule on goods manufactured, or produced. That is why the charge under Section 3 of the Act is on all, 'Excisable goods', 'produced or manufactured'. The expression 'excisable goods' has been defined by Clause (d) of Section 2 to mean, 'goods' specified in the Schedule. The scheme in the Schedule is to divide the goods in two broad categories - one, for which rates are mentioned under different entry and other the residuary. By this method all goods are excisable either under the specific or the residuary entry. The word 'goods' has not been defined in the Act. But it has to be understood in the sense it has been used in Entry 84 of the Schedule. That is why 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 by the person on whom duty is proposed to be levied. The expression 'produced or manufactured' has further been explained by this Court to mean that the goods so produced must satisfy the test of marketablity. 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.
7. The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied.
8. But the learned Additional Solicitor General urged that resin or solution which was produced by the appellant was technically known as resols. Reliance was placed on its meaning in the dictionary. The learned Counsel submitted that the tariff schedule has divided the items into specific and general. Resols being one of the items mentioned under Item 15A it was a specific item, therefore, once it was found that the intermediate goods produced by the appellants were resols then it was exigible to duty and it could not further be required to satisfy the common parlance test specially because this was a chemical and not a product which is commonly bought and sold in the market. The learned Counsel urged that once it was found that it was manufactured or produced then it should be deemed to have satisfied the test of marketability and consequently it was excisable goods within meaning of the Act and the Tribunal was justified in levying duty on it. The learned Counsel submitted that marketing capability depends on nature of goods. The test of [marketability and capable of being marketed could not be applied to such] goods as resol and, therefore, the submission of the learned Counsel for appellants that the resin or resol could be subjected to duty only if it was found that from raw materials some new substance was brought out and it was known as such was not correct as once the intermediate goods produced by the appellants was found to be resols and it having been mentioned in Item No. 15A the burden of the Department stood discharged.
9. Although the duty of excise is on manufacture or production of the goods, but the entire concept of bringing out new commodity etc. is linked with marketability. An article does not become goods in the common parlance unless by production or manufacture something new and different is brought out which can be bought and sold. In Union of India and Anr. v. Delhi Cloth & General Mills Co. Ltd., AIR 1963 SC 791, a Constitution Bench of this Court while construing the word 'goods' held as under :-
"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".
Therefore, any goods to attract excise duty must satisfy the test of marketability. The tariff schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold. In South Bihar Sugar Mills Ltd. and Anr. v. U.O.I. and Anr., AIR 1968 SC 922 it was held by this Court:
"The Act charges duty on manufacture of goods. The word 'manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods. As the Act does not define goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market. That it would be such an article which would attract the Act was brought out in Union of India v. Delhi Cloth and General Mills Ltd., 1963 Supp. (1) SCR 586 : AIR 1963 SC 791".
In A.P. State Electricity Board v. Collector of C. Ex., Hyderabad, 1994 (2) SCC 428 this Court reiterated the same principle and observed that marketability was must irrespective of whether it was marketed or not. Reference has already been made to Indian Cable (supra). Thus any goods mentioned in the tariff schedule does not attract duty unless it is marketable or capable of being marketed. The test of marketability was relaxed in Union Carbide India Ltd. v. Union of India and Ors., 1986 (24) E.L.T. 169 and it was held that, "in order to attract excise duty the article manufactured must be capable of sale to a consumer."
The question that arose was whether aluminium cans produced by the appellants for the flashlights manufactured by it were goods. It was held:
"The question here is whether the aluminium cans manufactured by the appellant are capable of sale to a consumer. It appears on the facts before us that there are only two manufacturers of flashlights in India, the appellant being one of them. It appears also that the aluminium cans prepared by the appellant are employed entirely by it in the manufacture of flashlights, and are not sold as aluminium cans in the market. The record discloses that the aluminium cans, at the point at which excise duty has been levied, exist in a crude and elementary form incapable of being employed at that stage as a component in a flashlight. The cans have sharp uneven edges and in order to use them as a component in making flashlight cases the cans have to undergo various processes such as trimming, threading and redrawing. After the cans are trimmed, threaded and redrawn they are reeded, beaded and an-odised or painted. It is at that point only that they become a distinct and complete component, capable of being used as a flashlight case for housing battery cells and having a bulb fitted to the case. We find it difficult to believe that the elementary and unfinished form in which they exist immediately after extrusion suffices to attract a market".
It was explained in Bhor Industries Ltd. v. C.C. £., 1989 (40) E.L.T. 280 SC:
"It appears to us that under the Central Excise Act, as it stood at the relevant time, in order to be goods as specified in the entry the first condition was that as a result of manufacture goods must come into existence. 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. Actual sale in the market is not necessary, user 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".
It was reiterated in Hindustan Polymers v. Collector of C.C. E., 1989 (43) E.L.T. 165:
"Excise duty, as has been reiterated and explained, is a duty on the act of manufacture. Manufacture under the excise law is the process or activity which brings into being articles which are known in the market as goods, and to be goods these must be different, identifiable and distinct articles known to the market as such. It is then and then only that manufacture takes place attracting duty. In order to be goods, it was essential that as a result of the activity, goods must come into existence. For articles to be goods, these must be known in the market as such and these must be capable of being sold or being sold in the market as such."
The submission of learned Counsel for the Department, therefore, that merely because the intermediate product manufactured by the appellants was resols and it is one of the items mentioned under Item 15A it was exigible to duty ignores the basic and primary test for exigibility of duty. The precise argument advanced by the learned Solicitor General of India was rejected in Bhor Industries (supra) and the order of the Tribunal in that case was set aside as "the test of marketablity or capable of being marketed", was not applied by the Tribunal.
Having traced the development of law that any goods produced or manufactured ipso facto do not attract duty unless they are marketable or capable of being marketed, we may now examine the dutiability of goods captively consumed. Prior to 1979 no duty was levied on such goods. But, as stated earlier, after amendment of Rules 9 and 49 captively consumed goods become exigible to duty. The rationale for not treating such goods as excisable was same that since such goods were not brought to the market for buying and selling they could not be subjected to duty. But when the Rules were amended a fiction was created that any article produced or manufactured if captively consumed was statutorily presumed to satisfy the test of marketability. But this presumption can be rebutted if it is established that the article produced and captively consumed was neither goods nor marketable nor capable of being marketed. In Bhor Industries (supra) crude PVC films manufactured by the appellants as intermediate product used for captive consumption in manufacture of leather cloth, jute matting and PVC tapes were held not to be excisable goods on the test of marketability. In Collector of Central Excise v. Ambalal Sarabhai Enterprises, 1989 (43) E.L.T. 214 the manufacturers produced starch hydrolysate which was captively consumed and fell under Item IE of the Central Excise Tariff. It was held to be goods, no doubt, but it was observed that from a practical point of view it was apparent that the goods were not marketable consequently they were not exigible to duty."
7. We shall consider these rival contentions. In the statement made before the Central Excise Officers, it has been specifically stated by Shri Anil Rajasekharan Nair at Question No. 7 and his answer which reads as follows :
"Ques.: Since Camlin Ltd. do not sell the value. If the said product is brought in the market and sold to crayon manufacturer, by anyone. Whether the said product has got commercial value?
Ans.: Yes. It has got commercial value."
This has been relied on by the adjudicating authority. This answer to our mind does not answer the department's case. It was more in the nature of a suggestive form of leading question. It does not ask, for example, whether the product is marketable or not and the deponent answers in the affirmative hence this cannot be relied on by the department. However, the marketability has to be seen from the judgments of the Supreme Court in the case of U.O.I. v. Delhi Cloth and General Mills [1977 (1) E.L.T. (J199)] at paragraph 17 as follows :
"17. 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 the case of Union Carbide v. UOl -1980 (24) E.L.T. 169, at paragraphs 5 & 7 the Court held as follows :
"5. The only contention urged by the appellant before us is that the aluminium cans produced by the appellant cannot be described as "goods" for the purposes of excise duty inasmuch as they are not marketable and are prepared entirely by the appellant for the flashlights manufactured by it."
"7. The question here is whether the aluminium cans manufactured by the appellant are capable of sale to a consumer. It appears on the facts before us that there are only two manufacturers of flashlights in India, the appellant being one of them. It appears also that the aluminium cans prepared by the appellant are employed entirely by it in the manufacture of flashlights, and are not sold as aluminium cans in the market. The record discloses that the aluminium cans, at the point at which excise duty has been levied, exist in a crude and elementary form incapable of being employed at that stage as a component in a flashlight. The cans have sharp; uneven edges and in order to use them as a component in making flashlight cases the cans have to undergo various processes such as trimming, threading and redrawing. After the cans are trimmed, threaded and redrawn they are reeded, beaded and anodised or painted. It is at that point only that they become a distinct and complete component, capable of being used as a flashlight case for housing battery cells and having a bulb fitted to the case. We find it difficult to believe that the elementary and unfinished form in which they exist immediately after extrusion suffices to attract a market. The appellant has averred in affidavit that aluminium cans in that form are unknown in the market. No satisfactory material to the contrary has been placed by the respondents before us. Reference has been made by the respondents to the instance when aluminium cans were ordered by the appellant from Messrs. Krupp Group of Industries. This took place, however, in 1966 as a solitary instance, and what happened was that aluminium slugs were provided by the appellant to Messrs. Krupp Group of Industries for extrusion into aluminium cans. The facts show that the transaction was a works contract and nothing more. Apparently, the appellant made use of the requisite machinery owned by that firm for extruding aluminium cans. Not a single instance has been provided by the respondents demonstrating that such aluminium cans have a market. The record discloses that whatever aluminium cans are produced by the appellant are subsequently developed by it into a completed and perfected component for being employed as flashlight cases".
In the case of Bhor Industries Ltd. v. CCE -1989 (40) E.L.T. 280 in paragraph 7 the Court held as follows :
"7. It is necessary in this connection to reiterate the basic fundamental principles of excise. The Judicial Committee of the Privy Council in Governor General in Council v. Province of Madras -1978 (2) E.L.T. (J 280) this Court observed at page 1287 of the report that excise duty was primarily a duty on the production or manufacture of goods produced or manufactured within the country. This Court again in In Re: The Bill to Amend Section 20 of the Sea Customs Act, 1878, and Section 3 of the Central Excises and Salt Act, 1944 [1964 (3) SCR 787] at page 822 of the report referring to the aforesaid observations of the Judicial Committee reiterated that taxable event in the case of duties of excises is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. Therefore, the essential ingredient is that there should be manufacture of goods. The goods being articles which are known to those who are dealing in the market having their identity as such. Section 3 of the Act enjoins that 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. "Excisable goods" under Section 2(d) of the Act means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt. Therefore, it is necessary, in a case like this, to find out whether there are goods, that is to say, articles as known in the market as separate distinct identifiable commodities and whether the tariff duty levied would be as specified in the Schedule. 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. Marketability, therefore, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985".
When we look into these three judgments it will be clear that in DCM's case (supra) the court emphasises the words "ordinarily come to the marketability to be bought or sold." In the Union Carbide case (supra) the Court found at paragraph 7 that It also appears that the aluminium cans prepared by the appellant... are not sold as aluminium cans in the market and can in a crude elementary and unfinished form incapable of being employed at that stage as a component in a flashlight. The court held specifically that elementary and unfinished form in which they existed immediately, after extrusion suffices to attract the market. Assessee in that case averred in affidavit that aluminium cans in that form as unknown in the market and no satisfactory material to the contrary has been placed by the respondents to the instance when aluminium cans were ordered by the appellant from Messrs. Krupp Group of Industries for extrusion into aluminium cans. This was rejected by the Supreme Court.
8. In Bhor Industries Case (supra) at paragraph 7 the Court held that -
"articles as known in the market as a separate distinct identifiable commodities and whether the tariff duty levied would be as specified in the Schedule."
Further in the case of C.C.E., v. Ambalal Sarabhai Enterprises -1989 (43) E.L.T. 214 the Court held:
"We are concerned in this appeal with starch hydrolysate and, therefore, if the process or activity of the assessee brings into existence an article different and distinct from what it was before the process and a new identifiable article known in the market as such comes into being, then the use of such starch hydrolysate captively would attract duty on the part of the assessee even in captive consumption. It is not in dispute as the Tribunal noted in the instant case that starch is hydrolysed by the respondent. The operation of hydrolysis, it is contended, results in bringing into being starch hydrolysate which is utilised in the manufacture of sorbitol. The question is whether starch hydrolysate is "goods". The case of the respondent was that the starch hydrolysate being wholly unstable and quickly fragmented and losing its character in a couple of days, the same could therefore, neither be stored nor marketed."
The Supreme Court in paragraph 5 of the judgment 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 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 crystallising out within two or three days. This is evidence indicating propensity of its not being marketed. It is good evidence to some to this conclusion that it would be unlikely to be marketable 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."
9. As to what they meant by market enquiry as envisaged above in another case of South Bihar Sugar Mills v. U.O.I. -1978 (2) E.L.T. 336. Another important judgment which we have to refer is Moti Laminates P. Ltd. 's case 1975 (76) E.L.T. 241 at paragraphs 6 and 7 the court held as follows :
"6. The duty of excise is leviable under Entry 84 of List I of the VII the Schedule on goods manufactured, or produced. That is why the charge under Section 3 of the Act is on all, 'Excisable goods', 'produced or manufactured'. The expression 'excisable goods' has been defined by Clause (d) of Section 2 to mean, 'goods' specified in the Schedule. The scheme in the Schedule is to divide the goods in two broad categories - one, for which rates are mentioned under different entry and other the residuary. By this method 'goods' has not been defined in the Act. But it has to be understood in the sense it has been used in Entry 84 of the Schedule. That is why 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 by the person on whom duty is proposed to be levied. The expression 'produced or manufactured' 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.
7. The duty of excise being on production and manufacture which means bringing out a new commodity it is implicity that such goods must be usable, movable saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that as produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied."
10. The court's observations in paragraph 6 that the goods so produced must satisfy a test of marketability. In paragraph 7 they mentioned that the production means "it should be usable, movable, saleable and marketable." When we look into the judgments right from DCM's case from the words, "ordinarily come to the market", it has been in 'Bhor Industries' case the Supreme Court says the goods will be usable, movable, saleable and marketable. In fact in Moti Laminates' case (supra) at paragraph 9 the Supreme Court held as follows : "Thus any goods mentioned in the tariff schedule does not attract duty unless it is marketable or capable of being marketed. Test of marketability would get reference in Union Carbide India v. U.O.I, (supra) it was held that so as to attract excise duty the article manufactured must be capable of sale to a consumer." The relaxation in Union Carbide v. U.O.I, i.e. capable of being marketed is noted by Moti Laminates's case. The marketability is again emphasised in the latter portion of paragraph 9 in Moti Laminates case. In para 6 it held as reproduced earlier.
In para 10 of the said case reported in 1995 (76) E.L.T. 241 at 249 the court held that:
"But when the Rules were amended a fiction was created that any article produced or manufactured if captively consumed was statutorily presumed to satisfy the test of marketability. But this presumption can be rebutted if it is established that the article produced and captively consumed was neither goods nor marketable nor capable of being marketed. The duty is attracted not by captive consumption of any article but it must be a goods within the meaning of the Act which part from having a distinctive name and known as such must be marketable or capable of being marketed."
11. The ld. DR, emphasised mainly the sentences in para 10 with the words "when the rules were amended to the words known as marketable and marketed. In this case, if we look into facts of the case, it is admitted the fact that Luxor Pen Co. has similar product by way of importation. In fact in the impugned order, it has been held as follows :
"Having established that identical goods have been bought and sold in the international trade, I do not think it is necessary to establish the marketability of the product further with reference to domestic trade." But letters produced by the assessee from local dealers which simply states that crayplas component compound is not available in the market. If Luxor Pen Co. can import such compound from abroad such compound can also be sold provided that such compound capable of being manufactures. From the composition of crayons and crayplas compound it is seen that there is no material different between these two commodities."
No doubt, this observation of the Collector has to be seen in the light of what is contained in the case of Union Carbide India Ltd. (supra) the court held as follows :
"Reference has been made by the respondents to the instance when aluminium cans were ordered by the appellant from Messrs. Krupp Group of industries for extrusion into aluminium cans. The facts show that the transaction was a works contract and nothing more. Apparently, the appellant made use of the requisite machinery owned by that firm for extruding aluminium cans. Not a single instance has been provided by the respondents demonstrating that such aluminium cans have a market. The record discloses that whatever aluminium cans are produced by the appellant are subsequently developed by it into a completed and perfected component for being employed as flashlight cases."
No doubt Shri M.H. Patil ld. Counsel states that the absence of proof of relationship between the foreign seller and the Luxor Pen Co. may have certain bearing in the case. That argument has no legal force to stand. That may be good for the purpose of valuation of the bonafide on the eligibility of duty. The Union Carbide case observation may not be applicable to the facts of this case because it is the sale in the instant case whereas in the Union Carbide case it has been found by the Supreme Court that the transaction was a works contract. We are conscious of the fact that the word "sale", has been amended by the constitutional amendment made in 1982 the word sale has been amended, so as to include not only sale in the conventional sense but also works contract for purpose of levy of Sales Tax. Enlarged the definition of sale was not considered by the Supreme Court in Union Carbide case. Therefore that case in our view may not be applicable to the facts of this case.
11. In Moti Laminates case it has been held that in paras 6 and 10 that they had produced and manufactured and have marketed.
12. As far as the marketability is concerned, the Supreme Court in C.E., v. DCM Co. Ltd. -1997 (92) E.L.T. 350 has held that marketability is art important one. This has been referred to in para 4 of the judgment. The court held the views of the same court made in Moti Laminates case regarding test of marketability. We feel that having gone through the judgment we are of the view that department has discharged its burden viz. the existence of the import by the competitor of the appellant. This was the marketability. It has been rightly held that the Department has discharged its burden.
13. As far as the classification is concerned, it is the contention of the appellant that it is classifiable under sub-heading 96.07 and not under 32.04. It is also contended by the appellant that Luxor Pen Co.'s case is not applicable to the facts of this case because that was the case of the product coming either in Chapter 32 or Chapter 39. The appropriate entries of Chapter 96 was riot considered by the lower authority as it was pointed out by both sides. Further it was also contended by the appellant that the goods which they have obtained essential character of final product and Interpretative Rules of Rule 2A is applicable. If that it be so, the latter heading is applicable in terms of Rule 3 of the Interpretative Rules. Therefore, CEGAT judgment in Luxor Pen Co. 's case is not applicable as they were in the form of chips.
14. It is contended by the Department, that there is no need to go to subsequent interpretation if on applying Rule 1 which provides Chapter notes and section notes are to be considered first. It is not possible to determine the classification only then other Rules are resorted to. In any event CEGAT judgment in Luxor Pen Co.'s case provides that the goods could be classifiable under sub-heading 32. It is contended that the product has to be treated as a colouring material and that distinction sought to be made in respect of Luxor Pens' case will not be sufficient to alter the classification made by the Tribunal in Luxor Pen's Co.'s case. Further as indicated by the Madras High Court in Motor Industries case goods have to undergo considerable operations viz. crayplas extrusion process. The product is in a very irregular shape considering the size of the end user viz. school children, making it into a proper shape thereby it is an essential process.
15. We have considered the rival submission. To understand the problem, we have to see what is the judgment of the Tribunal in Luxor Pen Co. 's case. In Luxor Pen Co.'s case the appellant imported 12 MTs of LDPE chips/powder. The samples were drawn and sent for test by the CRCL Laboratory, New Delhi. It was found that out of 10 samples were coloured irregular ships, one sample was found to be composed of synthetic resin, wax, inorganic pigment (TiO2) and inorganic filler. The last one was colouring matter. A show case notice was issued referring Note 3 of Chapter 32 alleging that the crayons for which goods have been imported were colouring preparations. Appellants contended that the goods came under Heading 39.01. Further referring to Chapter Note 32, especially Chapters 32 and 39 the Tribunal held at paragraphs 8 and 9 as follows:
"8. It is seen that the goods assessed under Heading 32.04.17 on test by the Chief Chemist were found to be in the form of coloured irregular chips composed of synthetic resin, wax, fillers and organic and inorganic colouring matters. As seen from the impugned order the major constituents were polyethylene (synthetic resin) 32.7 to 50% and colouring matter 11 to 18%. According to the Oxford Advanced Dictionary by A.S. Hornby, the expression "preparation" means: "kind of medicine, food, etc. specially prepared." The imported goods which have evidently been produced by mixing of polyethylene with other materials viz. organic and inorganic colouring matters, wax and fillers are undeniably 'preparations' which are excluded from the scope of Chapter 39 in terms of the 'General' notes under Heading 3901.10 of the HSM read with Note 3 of Chapter 32 of HSN in terms of which preparations used for colouring preparations fall under Headings 32.03 to 32.06. Further, the Notes (C) and (E) under Heading 32.04 also provide that the heading covers preparations based on synthetic organic colouring matter of a kind used for colouring any material or used as an ingredient in the manufacture of colouring preparations. The imported material based on synthetic organic colouring matter was admittedly meant to be used in the manufacture of 'Crayon' which is a preparation for imparting colour to paper. For these reasons, in our view, in terms of note (C) to Heading 32.04 the material composed mainly of polyethylene and colouring matter other than that based on Titanium Dioxide was classifiable under Heading 3204.17 as held by the Collector (Appeals).
9. It is seen that on test a part of the imported goods was found to consist of synthetic resin, wax, inorganic pigment (Titanium dioxide) and fillers. Evidently these goods are a preparation based on titanium dioxide. The imported titanium dioxide based preparation is admittedly meant for use as an ingredient in the manufacture of Crayons which are also colouring preparations used for imparting colour to paper. Hence, in terms of Note 3 to Chapter 32 of the HSN they would be appropriately classifiable under Heading 32.06. Therefore, we do not find any infirmity in the Collector's order holding the imported titanium dioxide based colouring preparation as classifiable under Heading 3206.10."
It is interesting to note that Chapter 32 deals with titanium and dying extracts of titanium and paraffins etc. and Chapter 39 deals with plastics and articles thereof. Chapter 96 deals with miscellaneous and manufactured articles. If we go through the observations of the Tribunal there is a reference to the Chief Chemist report. In the instant case the samples were tested and the Chief Chemist's report indicated in page 19 of the order shows that the chemical analysis showed what it contains 40.38% LDPE powder and other chemicals and 58.92% plastics and compound. It further states that they are in the form of thick flat shapes of sizes based on organic colouring matter and matter (sic) and similar compound of inorganic manner. In the judgment of Luxor Pen Co. 's case in paragraph 8 it has been seen that the goods that the goods were tested by the Chief Chemist was found to be in the form of irregular chips composed of resin, wax fillers, based synthetic resin wax organic and inorganic colouring matters. In terms of Section Note 3 of Chapter 32 specifically held in Chapter Notes 3 that Headings under 3203 and 3204 and 32.06 apply also to preparation based on colouring matters of a kind used for colouring any material or used as ingredients in the manufacture of colouring preparations. The headings do not apply however to pigments dispersed in non ageous media and in the manufacture of paints, including enamels (Headings No. 32.12) or to other preparations of Headings Nos. 32.07, 32.08, 32.09, 32.10 32.12, 32.13, or 32.15* The reference to 3203 would really show that they are referring to paints or other things. The Tribunal in the said case held the goods to come under Chapter 32.06. Before the lower authority Chapter 96 was not pressed. Even if it is pressed there is no discussion in the order about competing entires in Chapter 96. Hence we feel it would be better if the adjudicating authority looks into it and gives its views for which we remand it to the lower authority to redeter-mine the classification. For the sake of repetition we hold that the goods in question are marketable. Since we are sending the case back we are not deciding the question of limitation which will be looked into by the adjudicating authority once again. Ordered accordingly.