Case Note & Summary
The dispute arose under central excise law concerning the levy of duty on caprolactam recovered from waste by a manufacturer of nylon yarn. The assessee used caprolactam as raw material, subjected it to polymerisation, and spun the resultant poly-caprolactam into nylon yarn. During various stages of manufacture, solid waste containing poly-caprolactam was generated. To make full use of the expensive, duty-paid caprolactam, the assessee installed equipment to recover caprolactam from the waste and recycle it into the manufacturing process. The excise authorities treated the separation of caprolactam from waste as an independent manufacturing process and subjected the recovered material to excise duty. The assessee's claim for refund of such duty was rejected. The Collector (Appeals) upheld the rejection, and the Customs, Excise & Gold (Control) Appellate Tribunal also upheld it, following its earlier principal judgment which had held that recovered caprolactam was manufactured and that its absence of market sale was inconsequential because the tariff specified caprolactam as an assessable product. In subsequent similar matters, however, the Tribunal in Jagatjit Cotton Textile Mills Ltd. v. Collector of Central Excise and L.M.L. Ltd. v. Collector of Central Excise took a contrary view, holding that marketability was essential and that the Revenue had failed to prove that molten caprolactam was marketable. The assessee appealed to the Supreme Court, contending that the Revenue had led no evidence of saleability and that mere manufacture and tariff mention were insufficient. The Revenue argued that because the product was mentioned in the Schedule and used as raw material, marketability should be presumed, and the onus lay on the assessee to rebut that presumption; the Revenue sought a remand to establish factual marketability. The Supreme Court noted that in the later Tribunal decisions, the recovered caprolactam had been found non-saleable based on the assessee's evidence and the Revenue's failure to prove the contrary. The Court observed that the Revenue had rested content on the aspect of manufacture and had led no evidence on saleability. It held that marketability is an essential ingredient for excisability under central excise law, even for transient items captively consumed. The Revenue had not adduced evidence of marketability, and the assessee's evidence that molten caprolactam was not marketable stood unrebutted. The Court declined to remand because the Revenue had been given an opportunity in the earlier matters and had made no attempt to disprove the assessee's evidence. Accordingly, the Supreme Court allowed the appeals, set aside the impugned Tribunal orders, and held that the recovered caprolactam was not excisable to excise duty, with no order as to costs.
Headnote
A) Central Excise - Excisable Goods - Marketability Test - Central Excise Tariff Act, Schedule - The assessee manufactured nylon yarn using caprolactam and recovered molten caprolactam from waste for captive recycling. The Revenue treated recovery as manufacture and levied excise duty, rejecting refund; lower forums upheld. The Supreme Court held that marketability is an essential ingredient for excisability under Central Excise law; mere mention in the Tariff Schedule or captive consumption does not make an article dutiable. The Revenue bore the onus to prove marketability and failed to adduce evidence, while the assessee's evidence that molten caprolactam was not marketable remained unrebutted. No remand was justified as Revenue had prior opportunity; appeals allowed and recovered caprolactam held not excisable to excise duty.
Issue of Consideration
Whether caprolactam recovered from waste during the manufacture of nylon yarn is excisable to excise duty, and whether the requirement of marketability must be satisfied even where the product is mentioned in the Central Excise Tariff Schedule and captively consumed.
Final Decision
Appeals allowed; judgments and orders of the Tribunal under appeal set aside; held that recovered caprolactam is not excisable to excise duty; no order as to costs
Law Points
- Marketability is an essential ingredient for goods to be dutiable under Central Excise law
- mere mention of an article in the Tariff Schedule is not sufficient to make it excisable
- actual sale is not necessary but the Revenue must prove capability of being marketed
- captive consumption does not dispense with the marketability test
- the burden of proving marketability rests on the Revenue
- failure to adduce evidence of marketability renders the goods non-excisable
- no remand when Revenue had earlier opportunity to lead evidence.
