ORDER
S.S. Sekhon, Member (J)
1. The appellants filed classification list with effect from 5.6.86 and 1.3.87 in which they declared that one of the items viz. Benzyl Methyl Salicylate (for short BMS) was prepared in their factory and the same was non-excisable. They were issued with two show cause notices both dated 28.8.87, wherein it was proposed that BMS was an item liable to duty and the same is classifiable under Sub-heading 2913.00 of the Central Excise Tariff Act, 1985, prior to. 9.2.87 and under Sub-heading 2942.00 after 9.2.87 They submitted that BMS was not an excisable commodity, since the same is not sold by them nor the same has been purchased by any other party. It was submitted that the show cause notice did not give any ground based on which the proposal was made to levy duty on BMS. They submitted, that in order to levy duty under Central Excise Act, the department must show that the item is goods which is known to the trade which deals in the item. The item must be capable of being bought and sold in the market and as the BMS cannot be bought and sold in the market, it cannot be treated as marketable and therefore, it cannot be treated as goods liable to Central Excise duty.
2. The Assistant Collector confirmed the duty liability in terms of Rule 2(a) of Interpretative Rules and approved the Classification Lists, Aggrieved by this, the appellant took Writ Proceedings to the Hon’ble Court of Karnataka and filed the remand orders. In remand the Assistant Collector found and held: –
(a) That the appellants have adduced evidence by way of affidavits and letters from bulk drug dealers to show that BMS sent on stock transfer basis to their other units for use in the bulk drug manufacture is not marketed.
(b) That the department tried to make its own enquiries and the department was not able to furnish to any documentary evidence in support of the marketability of the BMS. Therefore, there was no alternative but to hold that the BMS is not marketable, therefore non-excisable.
3. Revenue took up this decision of non-exisability of the Assistant Collector to Collector (Appeals) by way of Review. The appellants again took up the matter in Writ to Karnataka High Court which was disposed of by directing the appellants to appear before Collector (Appeals) the Commissioner (Appeals) found:
(i) that BMS is a product covered in Chemical Weekly Drugs directory as a product manufactured by the respondent, clearing establishing that the product is a stable product capable of being manufactured and marketed. It is manufactured in the Bangalore factory, packed in drums and sent to Pathalganga manufacturing facility for further manufacture of Salbutomol Methyl.
(ii) As the goods are packed and have shelf life the goods are intermediate goods capable of being marketed. A marketable commodity need not necessarily be actually marketed.
(iii) The Assistant Commissioner failed to note the observation of Hon’ble Supreme Court in case of Union Carbide that what is important is the capacity of the product for ordinarily coming to the market and not that the product must necessarily come to the market.
(iv) He erred in not referring and relying upon the advise of the Drug Controller dt. 4.11.91 that BMS is a drug intermediate. It ought to have been considered whether or not BMS is marketable as drug intermediate if there were other manufacturers in the country having the desired technical know how to use the said goods for further manufacture.
(v) In the case at hand the respondents neither dispute, deny nor rebut that BMS is packed in containers and transferred to their pathalganga plant. The very fact that BMS is packed in containers and transported over 10,000 kms to be used at a later date in the manufacture of bulk drug goes to prove beyond any doubt whatsoever that BMS is marketable meaning it is saleable or is suitable for sale as such without anything more. It is an altogether different matter that it is not known in the market nor it is actually marketed i.e, bought and sold. In fact the appellants themselves concede BMS is unique to their case and it is their special composition and does not find application in any other manner or in any other formulation. Hence it is not known in the market. Inasmuch as BMS satisfies the norm laid down by the Hon’ble Supreme Court in the case of Indian Cable Co. Ltd. cited supra it should necessarily be held that it is a marketable product. I also find that the Drug Controller, Government of Karnataka has categorically clarified that BMS is a drug intermediate. This has also not been countered by the respondents in any manner. The respondents have relied upon 4 decisions of the Hon’ble Supreme Court. I find that none of these decisions come to their rescue. In the decision reported 7997 (90) ELT 424 copper pthalocyanine (CPC) manufactured while still in lump form was taken for captive consumption in the same factory. It was neither pulvarised, standardized nor packed in containers. The decision pertains to acetylene gas which emerges during the manufacture of trichloroethylene. Moreover, the acetylene gas was captively consumed and the case was remanded. In the case Calcium carbide was used within the factory in the manufacture of acetylene gas. It was not packed in airtight containers and hence it was held to be not excisable. In the case of Travancore Electro-Chemical Ind. Ltd. acetylene gas arising as a by-product in the course of manufacture of calcium carbide and used captively in the manufacture of acetylene gas remanded to the tribunal. The facts in this case are entirely different. Here the goods are not captively consumed, but are packed in containers, sent to a different manufactory, for use in the manufacture of bulk drug. The product is also a drug intermediate which is established beyond doubt and not in dispute.
(vi) It is very clear from the arguments of the respondents that BMS with specified formulation cannot be sold to others, since they do not desire the formula/formulation to be made known to other manufacturers. This is an intermediate product used for manufacture of finished product- bulk drug by themselves only. It is for this reason the said intermediate product is not marketed but this does not make the said intermediate product unmarketable. In view of this factual position and judicial provement relied upon in my findings, and allowed the Department’s appeal after setting aside the Assistant Collector’s order. This appeal is against the Order of Commissioner (Appeals).
4. We have heard both sides and find:
a) A perusal of the Show Cause Notice reveals that the ‘Chemical Weekly Drug Directory’ relied upon by the Revenue (photocopies of Page 26 and Ors. not clear, the original not supplied/product when called for by us), is listing the chemical and that the appellants manufacture the same. A perusal of The Merch Index’ 12th Edition does not indicate this intermediate drug chemical to be a known molecule whereas the drug made from it, the bronchodilator ‘Salbutane Sulphate’ is a known drug. The authenticity of the document now being relied upon is highly suspect, as regards its evidentiary value to indicate ‘marketability’. “Failure to lay the requisite evidence cannot be made up by reference to authoritative publications unless the excise authorities inform the assessee that they propose to rely on the same”, this position in law as laid by the Apex Court in CCE v. Steel Strips Ltd. induces us to reject the evidentiary value of the 200 pages of the photocopy of ‘Chemical Weekly’.
b) Relying on the case of Prabhat Associates v. CCE , where it was held’ the fact that a particular cassette was useful only to a particular party dose not affect its exigibility ‘ and the fact that ‘marketability’ is not determined by sale inasmuch as “everything sold is not marketable”. We are aware that Supreme Court has reversed this decision, but not on this aspect. ‘Marketability’ is a fact to be established in each case based on evidence available. The fact of the goods being packed and ready for despatch and despatched would be relevant fact to determine the “marketability”. The Apex Court decision in the case of A P. State Electricity Board . the Apex Court laid down test of marketability’ and held ” it makes no difference so long as they are available for purchasers”. We would find these finally graded goods marketable Apex Court decision in the Indian Cable Co. Ltd. has held:
11. After adverting 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 Mills , stated in paragraph 17 thus:
These definitions make it dear that to become ‘goods’ an article must be something which can ordinarily come to the market to be bought and sold
12. 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 and General Mills Co. Ltd. .
(2) South Bihar Sugar Mills v. Union of India .
(3) Bhor Industries v. Collector .
(4) Hindustan Polymers v. Collector 1989 (432) ELT 165 (SC)
(5) Collector of Central Excise v. Ambalal Sarabhai
(7) AP Electricity Board v. Collector of Central Excise
Following this law as laid, when admittedly the goods are packed ready for delivery but not sold, for reasons of captive consumption in a plant of the appellants own elsewhere miles away from the place of manufacture. Liability of duty of the same cannot be doubted on the question of shelf life or that it is not something that cannot ordinarily come to the market to be bought or sold We would therefore consider the BSM to be exigible
(c) We do not find any force in argument that BSM being a drug intermediate, the advice of Drug Controller could not be discarded. The classification & exigibility are not to be determined based only on the advice of Deputy Chief Chemists/Drug Controllers. The alternative argument no person can use BSM to manufacture bulk drug has been considered. There is no ban/legal estoppel shown to us how no one else can use BSM for drug manufacture. The fact of actual use only by the appellant or its not coming in the market is no evidence of its being not marketable.
(d) The reliance on Bhor Industries case of the Apex Court as pleaded before us by the appellant does not help them. As in that case goods were not fully made to specification while here they are.
5. In view of our findings, we reject the appeal.
G.A. Brahma Deva, Member (J)
1. I have gone through the proposed order, written by my id. Brother Shri S.S. Sekhon, Member (Technical). I am unable to agree with the conclusion arrived at by him on the point at issue. Hence, this separate order.
2. The short point to be considered in this case in whether the material by name Benzyl Methyl Salicylate (shortly referred to as BMS) which goes into the manufacture of the bulk drug Salbutamol Sulphate is an excisable goods. It was submitted on behalf of the party that BMS was not an excisable commodity since the same is not sold by them nor the same has been purchased by any other party. According to the Department, the product in question is covered in Chemical Weekly Drugs Directory as a product manufactured by the appellants and furthermore the goods are packed and sent on stock transfer basis to their other units at different places.
3. The Assistant Collector who adjudication the matter held that item is not marketable based upon the evidence by way of affidavits and letters from bulk drug dealers to show that BMS sent on stock transfer basis to their other units for use in the bulk drug manufacture, is not marketed. He also observed that the Department tried to make its own enquiries and the Department was not able to furnish any documentary evidence in support of the marketability of the BMS. However, on an appeal filed by the Revenue the Commissioner (Appeals) was of the view that the item on question is marketable, since the very item finds a place in the Chemical Weekly Drug Directory and furthermore the fact the BMS is packed in containers and transported at a distant place, used at a later date in the manufacture of bulk drugs goes to prove that BMS is marketable, since it is saleable or is suitable for sale as such without anything more.
4. On going through the facts and in view of the submissions made by both sides, I find that the item in question is an intermediate product and was used in the manufacture of final product viz. Salbutomol Sulphate. It is settled position now that the burden lies on the Department to prove excisability as well as classification. Since the marketability is an essential ingredient of excisability, it is for the Department to prove that it was marketed or capable of being marketed. The material which is sufficient for the purpose of holding that there is manufacturing activity and emergence of a separate product are not sufficient for the purpose of coming to the conclusion about the marketability of the product. The Department has not brought on record any evidence to show that these were either sold or marketable as such. On the other hand, the appellants have taken the plea staring from the beginning and in support of their contention they have filed affidavits and letters from bulk drug dealers to show that BMS is not marketable. Time and again Supreme Court has said that simply because certain articles fall within the schedule, it would not be dutiable under the Excise Law, if the said goods’ are not marketable. Though actual sale is not necessary the evidence should be producted by the Department that the goods’ in fact referred to above can be marketable. The Department has not produced any evidence in this case.
5. In the case of Union Carbide India Ltd. v. Union of India and Ors. , Supreme Court held that to become ‘goods’ an article must be something which can ordinarily come to the market to be brought and sold. Articles in crude or elementary form are not dutiable as they are merely intermediate product and not goods. While holding that view it observed “in order to attract excise duty, the article manufactured must be capable of sale to a consumer. Entry 84 of List 1 of Schedule VII to 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 producted’ must refer to articles which are capable of being sold to a consumer. To become ‘goods’ an article must be something which can ordinarily come to the market to the brought and sold.
6. While re-affirming the above view, further in the case of Collector of Central Excise v. Ambalal Sarabhai , it was held that the Department was to charge excise duty on an article and such levy is disputed by the assessee on the ground that goods were not marketable, the burden is on the Department to prove that goods are either marketed or marketable and if no evidence has been adduced by the Department inspite of opportunities, and the assessee has adduced positive evidence in this regard, the order favourable to the assessee cannot be said to be incorrect. It was also held that the duty of excise is on the manufacture of goods and for an article to be ‘goods’, they must be known in the market as such or they must be capable of being sold in the market as ‘goods’. Actual sale is not necessary. User in the captive consumption is not determinative of that the article is capable of being sold in the market or known in the market as goods. Even transient items or articles can be goods, provided that they were known in the market as distinct and separate articles having separate uses, they would still become goods if they were capable of being marketed even during the said short period. Thus, the goods with unstable character can be theoretically marketable if there was a market of such transient type of articles but one has to take a practical view on the basis of available evidence.
7. Similarly, it was observed by the Supreme Court in the case of Moti Laminates Pvt. Ltd. that intermediate goods produced and used for captive consumption not liable to duty if not marketable, not withstanding the fact of their being specified in Tariff Schedule and retrospective amendments of Rules 9 and 49 of Central Excise Rules, 1944. It held there that the duty of excise being on production and manufacture which means bringing out a new commodity, it is impicit that such goods must be usable, movable, saleable and marketable. The duty is on manufacture or production is, 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 the purposes of buying and selling.
8. In the case of Delhi Cloth and General Mills Co. Ltd. , the Apex Court clearly held that a commodity which is sought to be made liable to duty must be marketable and not a commodity that may by further processing be made marketable.
9. The Department heavily relied upon the Supreme Court in the case of A.P Electricity Board. wherein it was held that it makes no difference so long as they are available for purchasers. In that case, the poles were manufactured by independent contractors who sold them to Kerala State Electricity Board. On that ground, the Supreme Court held that sale by contractors to Kerala State Electricity Board itself shows that such poles do have a market. It is not the case herein that the product in question was sold by the appellant or purchased by anyone. Neither this product as such was sold by the Company nor any purchaser in the market has purchased the very product. Admittedly, the product in question was used in the process of manufacture of other finished product. Mere finding place in Chemical Weekly or packing for the purpose of sending on stock transfer basis to other units for use in the bulk drug manufacture itself, is not sufficient to prove that item is marketable or capable of being marketed. Since Department has not produced any evidence in this case to show that item as such was marketed or marketable, Department’s case remains unsubstantiated in my view. Accordingly appeal deserves to be allowed.
In view of the difference of opinion, in between the two members of the Bench, the matter is placed before the Hon’ble President to refer it to a third Member to resolve the issue.
The following point is required to be considered by the third member:
Whether in the facts and circumstances of the case, the appeal deserves to be rejected holding that BMS is excisable inasmuch as marketable as it was held by the Member (Technical) or appeal deserves to be allowed holding that item in question is neither marketable nor capable of being marketed as per the Member (Judicial).
K.K. Bhatia, Member
1. On a difference of opinion having arisen between the two learned members of the Bench, the above question is referred to me for resolving the difference. I have heard Shri G. Shivadass, learned Advocate for the appellants, M/s CIPLA Limited and Smt. Radha Arun, learned SDR for Respondent/ Revenue.
2. The product under consideration is Benzyl Methyl Salicylate (for short BMS): if found exigible, it would appropriately be placed under Sub-Heading 2913.00 of the Central Excise Tariff Act, 1985 prior to 9.2.1987 and under Sub-Heading 2942.00 after 9.2.1987, answering the description–‘other organic compounds’. The product under consideration has a definite name viz., BMS’ and given the name–one can legitimately infer that it has a definite chemical composition and is manufactured to particular specifications to make it stable and viable. In my view the specifications of this product must be provided by the appellants–for it is they who are manufacturing it. Admittedly, the BMS is being packed into drums and transported over a thousand kms from the factory of the appellants at Bangalore to their factory at Patalganga where it is used for the manufacture of the drug ‘Salbutomol Sulphate’. There is further evidence on record that the BMS transported from Bangalore is kept up to six months at the factory of the appellants at Patalganga before it is used in the manufacture of Sulbutomol Sulphate. It therefore establishes that the product under consideration has come into existence as a result of a manufacturing process, it is a stable compound and is also capable of being transported over a long distance without affecting its quality. The appellants themselves are contending that BMS is a powder, a drug intermediate, which goes into the manufacture of a drug which is consumed by the human beings. The Drug Controller has also termed this product as a drug intermediate. It is the very case of the appellants and is also mentioned in the Chemical Weekly–Drug Directory–that the appellants are the only manufacturers of BMS which they are consuming captively in the manufacture of the end product ‘Salbutomol Sulphate’. It is for this reason that the market enquiries conducted by the Department have not been able to establish any real sale of this item in the market. A manufacturer of ‘Salbutomol’-M/s KOPAL Ltd., Bombay and the bulk drug dealers in the market on enquiry have reported that they have neither used nor have seen the BMS being sold in the market. This is for the simple reason that the appellants are the one and the only manufacturers and the users of the BMS in India. This evidence only establishes the fact that the product is actual not being marketed but it does not establish that it is also not marketable. The Hon’ble Supreme Court in Para 10 of their Judgment in the case of A.P. State Electricity Board v. Collector of Central Excise, Hyderabad have observed that
The ‘marketability’ is thus essentially a question of fact to be decided in the facts of each case. There can be no generalization. The fact that the goods are not in fact marketed is of no relevance. So long as the goods are 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.
In the facts of the present case, if the BMS were not supplied by the Bangalore factory of the appellants on stock transfer basis to their Patalganga factory and the latter unit was to manufacture ‘Salbutomol’, they have necessarily to procure it from the market. Given the characteristics of the product under consideration–viz., a specific chemical composition, sustained shelf life, the nature of its packing and further its capability of being brought to the market for sale, I am of the view that the product under consideration is marketable and, therefore, liable to excise duty. In the result, I would support the view that in the facts and circumstances of the case, the appeal deserves to be rejected as held by the learned Member (Technical).
3. The matter may now be placed before the original Bench for passing the Final Order on the appeal.
FINAL ORDER
1. By majority, it is held that product under consideration is marketable and, therefore, liable to excise duty. Accordingly the appeal is dismissed.