Case Note & Summary
The dispute arose from appeals filed under Section 35-L of the Central Excises & Salt Act, 1944 by manufacturers of laminated sheets who challenged excise duty demands on intermediate resin solutions captively consumed in their manufacturing process. The appellants purchased raw materials like phenol, formaldehyde, hexamine etc. and processed them to produce phenol formaldehyde and melamine formaldehyde solutions, which were used without further processing in the manufacture of laminated sheets. In 1979, amendments to Rules 9, 49 and 173(1) of the Central Excise Rules, 1944 made captively consumed goods dutiable, leading the Superintendent of Central Excise to issue notice that phenol formaldehyde and melamine formaldehyde were liable to duty. The appellants contended that the reacting mixtures were unstable, had short life, and were not marketable in the intermediate stage. The Assistant Collector found the solution was not stable but opined that with a stabiliser it could be marketed, thus treating resins as goods. The Collector (Appeals) allowed the appeals holding that an intermediate product must be known to the market or commercial community and if something more was needed to make it marketable, it could not be excisable. The Department appealed to the Customs, Excise and Gold (Control) Appellate Tribunal, which reversed, holding that the product was resol, mentioned in Tariff Item 15A, and since it answered the chemical description, it was dutiable regardless of marketability; the Tribunal also noted the appellants' counsel conceded the resin could be kept for up to 15 days. The core legal issues before the Supreme Court were whether the resin/resol produced by the appellants could be considered 'goods' for excise levy, and whether marketability is a precondition for excisability under Section 3 of the Act. The appellants argued that the solutions were non-marketable unstable intermediates, while the Department relied on tariff classification and chemical nomenclature. The Court examined the scheme of the Act, noting that excise duty under Entry 84 of List I of the Seventh Schedule is on goods produced or manufactured, and Section 3 charges 'excisable goods' produced or manufactured. It reiterated that 'goods' must be understood in the commercial sense and that marketability is a sine qua non for levy. Relying on Indian Cable Co. Ltd. v. Collector of Central Excise, the Court held that a finding of marketability is a prerequisite. On facts, the solution at 'A' stage was fluid and unstable, requiring addition of stabiliser or retarder to be retained; it had a short life of two to three days, or at best 15 days under controlled temperature, and otherwise converted into a jelly incapable of use. The Court concluded that since the solution could not be used as such without further processing or application of heat or pressure, it was not goods on which excise duty could be levied. The appeals were therefore allowed and the Tribunal's order was set aside, holding that the intermediate resin solutions were not excisable goods.
Headnote
A) Central Excise - Marketability and Excisable Goods - Central Excises & Salt Act, 1944, Sections 2(d) and 3 - Duty of excise is leviable only on goods that are produced or manufactured and are marketable or capable of being marketed; an intermediate product that is unstable and cannot be used or sold without further processing is not 'goods' for the purpose of excise levy. The Court reasoned that the solution produced by the appellants was not usable without further processing or application of heat or pressure and therefore could not be considered goods. Held that the resin solution failed the marketability test and was not excisable goods (Paras 5-7). B) Central Excise - Tariff Classification - Central Excises & Salt Act, 1944, First Schedule, Tariff Item 15A and Explanation II - The fact that a product is chemically known as resols and appears in a tariff entry does not make it dutiable if it is not marketable; tariff classification alone cannot determine excisability. The Tribunal erred in treating chemical nomenclature as sufficient for levy of duty, as goods must still satisfy the marketability test. Held that inclusion in a tariff entry by chemical description is not conclusive for excisability (Paras 5-6). C) Central Excise - Manufacture and Production - Central Excises & Salt Act, 1944, Section 2(f) - Production or manufacture implies bringing into existence a new commodity known to the commercial community for buying and selling; a mere chemical solution in continuous process without a definite marketable stage is not manufactured goods. The Court observed that the solution was taken out from the vessel in semi-processed condition and used without further processing in manufacture of laminated sheets, but it was not marketable. Held that the intermediate solution did not amount to manufacture of excisable goods (Paras 4-7). D) Central Excise - Captive Consumption and Rule Amendments - Central Excise Rules, 1944, Rules 9, 49 and 173(1) - The 1979 amendments making captively consumed goods dutiable cannot impose duty on goods that are not marketable; captive consumption of unstable non-marketable intermediate products does not attract excise duty. The Department's reliance on the amendments was misplaced because the statutory requirement of marketability remained a precondition. Held that the appellants were not liable to pay duty on such intermediate products (Paras 4-6).
Issue of Consideration
Whether various goods mentioned in the Schedule of Excise Tariff are dutiable as such or they would be excisable goods as defined in the Act only when they are marketable or capable of being marketed; specifically whether resin/resol produced by appellants and captively consumed is goods for purpose of excise levy
Final Decision
The Supreme Court held that the unstable resin solution produced by the appellants was not 'goods' because it was not marketable or capable of being marketed without further processing, and therefore not excisable under Section 3 of the Central Excises & Salt Act, 1944. The appeals were allowed and the Tribunal's order was set aside.
Law Points
- Excise duty is leviable only on goods that are produced or manufactured and are marketable or capable of being marketed
- tariff classification alone does not determine excisability
- captive consumption of unstable non-marketable intermediate products does not attract duty
- production or manufacture must bring into existence a new commodity known to commercial community
- provisions of Central Excises & Salt Act mandate marketability as sine qua non for levy of duty
