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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2820 of 1984.

From the Order dated 25.4.84/4.5.84 of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. F.D. (SB)(T) A. 999/80-C in Order No. 223/84. Harish N. Salve, Mrs. P.S. Shroff, J.M. Patel and S.A. Shroff for the appellant.

B. Dutta, Additional Solicitor General, Ms. Indu Malho- tra and C.V.S. Rao for the respondent.

The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. This is an appeal under Section 35L of the Central Excises and Salt Act, 1944 (hereinafter referred to as 'the Act') from the order passed and judgment delivered on 25th April, 1984/4th May, 1984 by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (hereinafter referred to as 'the Tribunal'). The question involved is whether the crude PVC film is dutiable. The appellant is, inter alia, a manufacturer of crude PVC films for the purpose of use in final products such as leather cloth and laminate jute mattings and PVC tapes--both insula- tion and adhesive. The said crude PVC films are manufactured by the appellant in a continuous process in the factory premises of the appellant which are licensed premises under the Act. The appellant filed classification list No. XIV/75 dated 20th November, 1975 in respect of crude PVC films used for lamination with jute and for tapes claiming that the said PVC films were non-excisable on the ground that the same were nonmarketable intermediate products used exclu- sively for captive consumption. The said classification was approved by the Assistant Collector, Central Excise on 9th December, 1977.

The Tribunal in the order has set out the contentions and observed that the question for determination was whether crude PVC film fell for classification under Item 15A(2) of the Central Excise Tariff or not. A submission was made that the Appellate Collector had held that the crude PVC sheets were not marketable and had not acquired the character and status of PVC films as known to the market. It was contended on behalf of the appellant that only marketable PVC film would fall within the said item. On the other hand, the Department's contention was that there was nothing to show that the film/sheet was crude and the test of marketability was not relevant. According to the Tribunal, the crude PVC films/sheets would fall under the Tariff Item. The Tribunal was of the view that the tariff entry did not spell out whether it covered only finished film/sheet or whether it covered also crude film/sheet. The Tribunal came to the conclusion that the tariff item covered all types of films/sheets. The Tribunal also came to the conclusion that the concept of marketability was not relevant and all sorts of crude films would be covered by the entry. The Tribunal was of the view that the Appellate Collec- tor's observations were made entirely in different context. In that view of the matter, the Appellate Collector's order was confirmed subject to the modification that duty in respect of clearances prior to the issue of the Show Cause Notice was restricted to the period permissible in terms of Rule 10 read with Rule 173-J, that is to say, for 12 months. In other words, the Tribunal's view was that if the descrip- tion of the goods in question fell into the entry, it was dutiable in the intermediate list and as such the goods had become goods as known to the market and the question of marketability or being capable of being sold in the market was not relevant. In support of this appeal, on behalf of the appellant, it was contended by Shri Harish Salve that it was only the 'goods as specified in the Schedule' to the Central Excise that could be subject to the duty. 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 a 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 a goods. That was necessary. This has been clearly spelt out by this Court in Union of India v. Delhi Cloth & General Mills, [1963] Supp. 1 SCR 586. There this Court held that excise duty being leviable on the manufacture of goods and not on their sale, the manufacturer could not be taxed unless manufacturing process resulted in production 'of goods as known in the market' (empahsis supplied). In that case, the respondents, who were manufacturers of vegetable products known as Vanas- pati, were assessed to excise duty under Item 23 of the First Schedule to the Central Excises and Salt Act, 1944, on what the taxing authorities called the manufacture of 'r- efined oil' from raw oil which according to them fell within the description of "vegetable non-essential oils, all sorts, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power". The common case made by the respondents in their petition under Article 226 of the Constitution challenging the imposition was that for the purpose of manufacturing Vanaspati they purchased groundnut and til oil from the market and subjected them to different processes before applying hydrogenation to produce Vanaspati and that nothing that they produced at any stage was covered by that item. Affidavits by experts were filed by both the parties and the High Court found in favour of the respondents and allowed the petitions. The Union of India appealed. It was urged on its behalf before this Court that before finally producing Vanaspati the respondents produced at an intermediate stage what was known as 'refined oil' in the market and although they might not sell it and although Vanaspati, when produced, was liable to excise duty under another item, that could not affect their liability. It was held that excise duty being leviable on the manufacture of goods and not on their sale, the petitioners in that case no doubt be liable if they produced 'refined oil', as known in the market, at an intermediate stage. But the Court found that it was clear that there could be no 'refined oil' as known in the market without deodorisation according to the specification of the Indian Standards Institute and the affidavits of the experts. Since, however, the process of deodorisation was admittedly applied in the respondents' factories only after hydrogenation was com- plete, they could not be said to produce 'refined oil' at any stage. Nor could the respondents be held to manufacture some kind of 'non-essential vegetable oil'. K.C. Das Gupta, J., who spoke for the Court, at page 595 of the report, observed as follows: