A.P. STATE ELECTRICITY BOARDversusCOLLECTOR OF CENTRAL EXCISE, HYDERABAD

              A.P. STATE ELECTRICITY BOARD                                    A
                            v.
        COLLECTOR OF CENTRAL EXCISE, HYDERABAD

                          FEBRUARY 1, 1994

         [B.P. JEEVAN REDDY AND B.L. HANSARIA, JJ.]                           B

    Central Excises and Salt Act, 1944: Sections 2(d), :J-'Excisable
Goods'-Manufacture of-'Marketability'-Concept of.

      The appellant-Electricity Board required prestressed cement con- C
crete poles for distribution of electricity generated by it. The manufacture
of the poles was done by the Contractors under direct supervision of the
Board which supplied requisite material like cement, concrete, steel etc. to
the Contractors. The Revenue sought to levy excise duty on the poles
manufactured by the appellant, treating.. the same as 'goods' as envisaged
by Section 3 of the Central Excises and Salt Act, 1944. It was resisted by D
the appellant. The matter ultimately went before the Customs, Excise and
Gold (Control) Appellate Tribunal. The Tribunal decided in favour of the
Revenue.

      In appeal to this Court, it was contended on behalf of the appellant-   E
State Electricity Board that the poles manufactured by it were utilized for
its own purpose and were not sold in the market; the poles had no market,
are not known to the market, and that they were not 'marketable' it was
contended. It was argued that for the said re&1sons, they were not goods as
contemplated by Section 3 and Section 2(d) of the Central Excises and Salt
Act, 1944.                                                                    F
      Dismissing the appeal, this Court

      HELD: 1.1. The 'marketability' is essentially a question of fact to be
decided in the facts of each case. There can be no generalisation. The fact
that the goods are not in fact marketed is of no relevance. So long as the G
goods are marketable, they are goods for the purpose of Section 3 of the
Central Excises and Salt Act, 1944. It is also not necessary that the goods
should be generally available in the market. Even if the goods are available
from only one source or from a specific market, it makes no difference so
long as they are available for purchasers. Even if there is only one pur- H
                                   499
    500                   SUPREME COURT REPORTS                   (1994} 1 S.C.R.

A   chaser of the goods it must still be said that there is a market for the same.
    The marketability of goods does not depend upon the number of pur-
    chasers nor is the market confined to the territorial limits of this country.
                                                                (506-G-H; 507-A)
          1.2. The appellant's own case before the excise authorities and the
B C.E.G.A.T. - though not pressed before this Court - that the poles were
    manufactured by the independent contractors from whom it purchased
    them, besides, the fact that in the State of Kerala the poles are manufac-
    tured by independent contractors who sell them to Kerala Electricity
    Board, shows that such poles do have a market. (507-B-C]

C        Collector of Central Excise v. Kera/a State Electricity Board, Civil
    Appeal No. 140of1989 disposed of on March 12, 1990, relied on.

          Union of India v. Delhi Cloth & General Mills, (1963) Suppl. 1 S.C.R.
    586; South Bihar Sugar Mills Ltd. v. Union of India, [1968) 3 S.C.R. 21;
D   Union Carbide India Ltd. v. Union of India, (1986) 2 S.C.R. 162; .Bhor
    Industries Ltd., Bombay v. Collector of Central Excise, Bombay, (1989) 1
    S.C.R. 382 and Collector of Central Excise v. Ambala Sarabhai Enterprises,
    (1989) 3 S.C.R. 784, distinguished.
                                                                                     -
          CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4030-45
E of 1991.
         From the Judgment and Order dated 3.1.1991 of the Customs, Excise
    and Gold (Control), Appellate Tribunal, New Delhi in A.Nos.
    ED/SB/396/83-A, ED/SB/95/84-A, ED/SB/96/84-A, E/686/85-A, E/483/86-
    A, ED/SB/497/84-A, E/245/87-A, E/C0/134/87-A, 246/87-A with
F   E/C0/138/87-A & E/Misc/1028/90-A, E/482/86-A & E/Misc/1029/90-A,
    E/470/86-A with E/Misc/1039/90-A, E/273/87-A & E/C0/136/87-A,
    E/Misc/1036/90-A, E/274/87-A, E/C0/139/87-A, E/Misc/1033/90-A,
    E/284/87-A, E/C0/137/87-A, E/Misc/1026/90-A, E/352/88-A &
    E/Misc/1035/90-A, E/279/87-A & E/C0/135/87-A, E/Misc/1035/90-A,
    E/687/85-A & E/Misc/1027/90-A and Order No. 64 to 79/91-A and Misc.
G   Orders Nos. 33 to 45 of 1991-A.

                                       WITH

          C.A. Nos. 791, 4440/88 and 4563-4581 of 1984.

H         Shanti Bhushan, K. Rajendra Chowdhary, Rakesh K. Sharma and·
                 AP.S.E.B. v. C.C.E. [JEEVAN REDDY, J.)                  501

Ashok Grover for the Appellants.                                                A
      Joseph Vellapallai and Ashok K. Srivastava for the Respondents.

      The Judgment of the Court was delivered by

       B.P. JEEVAN REDDY, J. 1. The question raised in this batch of            B
appeals is whether the prestressed cement concrete poles manufactured by
the appellant, Andhra Pradesh State Electricity Board, are "goods" within
the meaning of Section 3 of the Central Excise and Salt Act, 1944. Section
3 levies duties of excise "on all excisable goods ......which are produced or
manufactured in India." The expression "excisable goods" is defined in          C
clause (b) of Section 2. At the relevant time, the definition ran thus:
"excisable goods means goods specified in the Schedule to this Act as being
subject to a duty of excise and includes sale." The expression "goods" is not
defined. According to the learned counsel for the appellant, goods con-
templated by Section 3 and Section 2( d) are those goods which are
"marketable" and inasmuch as the poles manufactured by the appellant are        D
not marketable, they are not goods. It is the correctness of the said
submission which we have to examine.

      2. The Appellant-Electricity Board requires poles of different sizes,
strength and dimensions for distributing electricity generated by it. The
manufacture of these poles is actually done by the contractors under the E
direct supervision of the Board. It is the Board which supplies the requisite
material like, cement, concrete and steel. In fact, one of the main conten-
tions raised by the appellant before the Customs, Excise and Gold (Con-
trol) Appellate Tribunal (C.E.G.A.T.), besides the one urged in these
appeals, was that the manufacture of the said poles is undertaken by F
independent contractors and that the Board merely purchased the same
from them. On this basis, it· was contended that the duties of excise must
be levied upon the contractors and not upon the appellant-Board. This plea
is, however, not urged by the appellant's counsel before us. The only
contention of Sri Shanti Bhushan, learned counsel for the appellant is this:
the poles manufactured by the appellant are of various sizes, strength and G
dimensions. There are about 100 types of poles. All the poles manufactured
by the Board are utilised for its own purposes. They are not sold in the
market. In fact, they have no market and are not known to the market. The
excise authorities have not pointed out any instance where these poles were
sold by the Board. They are, therefore, not marketable and hence, not H
                                                                                    -1(
                                                                                      I

    502                   SUPREME COURT REPORTS                   [1994) 1 S.C.R.

A   'goods' within the meaning of and for the purposes of Central Excise Act.

        3. Sri Joseph Vellapally, learned counsel for the Revenue, on the
  other hand, submitted that the very plea taken by the appellant at an t!arlier
  stage that these poles were manufactured by the independent contractorr;
  from whom the appellant-Board purch~ed them itself shows that these
B goods are marketable. Learned counsel relied upon an order of this Court
  in Collector of Central Excise v. Kera/a State Electricity Board, Civil Appeal
  No. 140 of 1989 disposed of on March 12, 1990, wherein this court accepted
  the finding recorded by the C.E.G.A.T. that the manufacture of poles in
  that case was done by independent contractors from whom the Kerala State
C Electricity Board purchased them. Counsel pointed out that just as the
  appellant- Board requires poles of different s.izes, strength and dimensions,.
  so does Kerala Board. The fact that Kerala Board purchases these poles
  from contractors clearly established the marketability of these poles. The
  fact that the appellant does not sell these poles does not affect the
D marketability of the said goods. The counsel also pointed out that, besides
  Electricity Board, there are other establishments engaged in the manufac-
  ture of electricity like Tatas in Bombay. They too require poles of different
  sizes which may either be manufactured by them or purchased from
  independent contractors.

E         4. Since the requirement of 'marketability' has been evolved by a
    process of judicial interpretation, it would be appropriate to notice the
    relevant decisions, upon which strong reliance is placed by Sri Shanti
    Bhushan.

F          5. The first decision is in Union of India v. Delhi Cloth & General
    mills, (1963) Suppl. 1 S.C.R. 586. The respondent-mills was engaged in the
    manufacture of vegetable product known as "Vanaspati". Vanaspati was
    subject to duty. It was the common case of both the parties that for the
    purpose of manufacturing vanaspati, the respondent-mills purchased
    groundnut and 'til' oil from the market and subjected them to different
G   processes before applying hydrogenation to produce vanaspati. The stand
    of the Union of India was that in the course of manufacture of vanaspati,
    the respondent-mills produced at an intermediate stage what is known as
    'refined oil' in the market and although the respondent may not sell it as
    such, still it being a marketable product, it was liable to excise duty under
H   Tariff Item 23 of the Schedule which levied duty on "Vegetable, non-

     •                         •
                AP.S.E.B. v. C.C.E. [JEEVAN REDDY, J.]                 503

essential oils, all sorts, in or in relation to the manufacture of which any A
process is ordinarily carried on with the aid of power." This stand was
negatived by this Court holding that there could be no refined oil as known
to the market without deodorisation. In other words, non-deodorised
refined oil is not known to market whereas the 'refined oil' obtained by the
respondent at an intermediate stage of production of vanaspati is not
deodorised. The respondent, it was held, applied the process of deodorisa-
                                                                              B
tion only after hydrogenation. The court relied upon the specification by
the Indian Standards Institution to hold that "without deodorisation, the oil
is not "refined oil" as is known to the consumers and the commercial
community." Accordingly, it held that the "refined oil" which was obtained
by the respondent at an intermediate stage of production/manufacture of C
vanaspati was not liable to duty. The ratio of this judgment is that inasmuch
as the "refined oil" obtained by the respondent at an intermediate stage of
production of vanaspati cannot be treated as "refined oil" known to the
market and consumers because no refined oil is ever marketed unless it is
deodorised, it is not "goods" for the purpose of the Act. It was found as a D
fact that the respondent did not deodorise the "refined oil" at any stage; it
applied the said process only after hydrogenation.

      6. The second decision relied upon is in South Bihar Sugar Mills Ltd.
v. Union of India, [1968] 3 S.C.R. 21. The appellants ·were engaged in the
manufacture of sugar by carbonation process. They paid excise duty on the E
sugar manufactured by them. The appellants employed a process of burn-
ing limestone with coke in a lime kiln with a regulated amount of air
whereby a mixture of gas was generated consisting of carbon dioxide,
nitrogen, oxygen and a small quantity of carbon monoxide. The content of
carbon dioxide in this mixture of gases ranged from 27 to 36.5%. The said F
mixture of gases was compressed so as to achieve pressure exceeding
atmospheric pressure and then passed through a tank containing sugarcane
juice so as to remove impurities from it and refine the juice. Actually, for
the purpose of refining, only carbon dioxide in the gas was used. The
remaining gases escaped into the atmosphere by a vent provided for the G
purpose. The Revenue sought to treat the respondent-mills and other
similar mills as manufacturers of "compressed carbon dioxide" and sought
to levy duty on it under Tariff Item 14H. The respondent's case was that
they maintained lime kiln to generate· a mixture of gases and not carbon
dioxide and that at no stage in the process of generating this mixture and
passing it through the sugarcane juice was carbon dioxide - which formed H
    504                   SUPREME COURT REPORTS                  (1994] 1 S.C.R.

A a part of this mixture of gases - either -compressed, liquefied or solidified.
  They contended that the mixture of gases generated by them was not
  carbon dioxide, as known to the market, since carbon dioxide as known to
  market, as per specification laid down by Indian Standards Institution,
  meant gas with 99% content of carbon dioxide. This court rejected the
  Revenue's stand holding that the mixture of gases (referred to as 'kiln gas')
B was not c~on dioxide. Carbon dioxide was only a component of it, the
  content whJeof ranged from 27 to 36.5%. According to the specifications
  laid down by the Indian Standards Institution, the carbon dioxide known
  to the market was a gas having a component of 99% carbon dioxide. The
  kiln gas cannot, therefore, be subjected to ·duty as carbon dioxide. The
C court observed that compressed· carbon dioxide as known to market is
  wholly different from the kiln gas generated by the respondent. It does not
  mean, the court clarified, that if the content of carbon dioxide is less than
  99%, it would not be carbon dioxide, for there can be sub-standard
  products as well. But what is produced and marketed must be carbon '
D dioxide. The kiln gas generated by the respondents, the court observed,
  can never be understood as carbon dioxide, nor is it ever liquefied or
  solidified. It cannot, therefore, be called "carbon dioxide as understood in
  the market among those who deal in compressed carbon dioxide." The
  court clarified further: "at the same time the duty being on manufacture
  and not on sale, the mere fact that kiln gas generated by these concerns is
E not actually sold would not make any difference if what they generated and
  use in their manufacturing processes is carbon dioxide." It may be noticed
  that, at the relevant time, Tariff Item 68 was not in force, which Item was
  added only in the year 1975. The Revenue sought to tax it under Tariff
  Item 14H which spoke of "compressed, liquefied or solidified gases" includ-
F ing carbon acid (carbon dioxide)." The court found that kiln gas was not
  'carbon dioxide' no~ was it ever cqmpressed, liquefied or solidified by the
  respondents.                        "'

          7. The next decision relied upon is in Union Carbide India Ltd. v.
G Union of India, (1986] 2 S.C.R. 162. The appellant-company was engaged
  in the manufacture and sale of flashlights (torches). For that purpose, it
  used to purchase aluminium slugs and produced alun:.inium cans or torch
  bodies at its factory by a process of extrusion. The Superintendent of
  Central Excise called upon the appellant-company to submit a price list in
  respect of the aluminium cans for the purposes of levying excise duty
H thereon. While complying with the said demand, the appellant protested
                AP.S.E.B. v. C.C.E.[JEEVANREDDY,.T.)                     505

that the said aluminium cans cannot be described as "goods" for the             A
purpose of levying excise duty inasmuch as they are not marketable and
that they are prepared only for the purpose of flashlights manufactured by
the appellant. It was also submitted that preparation of aluminium cans out
of aluminium slugs did not amount to manufaeture and that aluminium
cans are merely intermediate products in the manufacture of flash lights.       B
The aluminium cans prepared by the appe!lant, it submitted, were
manufactured by it entirely for its own purposes, viz., for the manufacture
of flashlights. The aluminium cans at the point at which the excise duty was
sought to be levied were in a crude and elementary form incapable of being
employed in that state as components in a flashlights. The cans had sharp
uneven edges and before they could be used as a component in making the         C
flashlight, these cans had to undergo various processes such as trimming,
threading and redrawing. After trimming, threading and redrawing, they
were reeded, beaded and anodised or painted. It is at that point that they
became distinct and complete components capable of being used as flash-
light cans for housing battery cells and for having a bulb fitted thereto. On   D
the said facts, it was held by this Court that the aluminium cans in their
aforesaid elementary and unfinished form were not capable of sale to a
consumer and hence not marketable - nor were they ever marketed. This
Court accepted the affidavit filed by the appellant that the aluminium cans
in that state are not known to that market because the Revenue could not
produce any material to the contrary. The ratio of this decision is that the    E
aluminium cans, which were sought to be taxed, were, in that state not
marketable. They were not capable of being sold to a consumer, nor were
they ever sold in that state.

       8. The next decision relied upon is in Bhor Industries Ltd., Bombay      F
v. Collector of Central Excise, Bombay, [1989] 1 S.C.R. 382. The question
in this case was whether the crude PVC films manufactured by the appel-
lant therein were 'goods' within the meaning of Section 3. The crude PVC
films represented an intermediate product used for captive consumption
in manufacture of leather cloth, laminate jute mattings and PVC tapes. It
was found by the appellate collector on the material produced by the            G
appellants that crude PVC films were not marketable products. The
Revenue could not produce any material establishing the contrary. On that
basis, it was held by this Court that the crude PVC films are not marketable
and not being 'goods' known to market, they cannot be treated as "goods"
for the purposes of Section 3. It was observed that marketability is an         H
    506                   SUPREME COURT REPORTS                   [1994] 1 S.C.R.

A    essential ingredient in order to be dutiable under the Schedule to the Act.

         9. Lastly, Sri Shanti Bhushan relied upon Collector of Central Excise
  v. Ambalal Sarabhai Enterprises, (1989] 3 S.C.R. 784. During a visit to the
  factory premises of the respondent, the central excise officers found that
   the respondent also manufactured and captively consumed starch
B hydrolysate, which according to them was glucose and fell under Item l(E)
   of the Central Excise Tariff. The respondent's case, however, was that the
  said starch hydrolysate was not "goods" since it was not marketable as such.
  It was found by the Tribunal that the said product manufactured by the
   respondent was not and never was a marketable commodity and, therefore,
c does not constitute goods subject to duty. The respondent produced
  evidence to show that starch hydrolysate was highly unstable, that it frag-
  mented quickly losing its character in a couple of days. For this reason, it
  could neither be stored nor marketed. There was no evidence to the
  contrary adduced by the Revenue. This court observed that while even
D transient items of articles can also be goods, one has to take a practical
  approach and decide on the basis of material before the court whether the
  particulars goods were marketable. After referring to the characterstics of
  the said product (starch hydrolysate), the court came to the "conclusion
  that it would be unlikely to be marketable as it was highly unstable." The
  test, therefore, is the "marketability"; this test has to be applied and the
E matter decided in a pragmatic and practical sense.

           10. It would be evident from the facts and ratio of the above decisions
    that the goods in each case were found to be not marketable. Whether it
    is refined oil (non-deodorised) concerned in Delhi Cloth and General Mills,
F   or kiln gas in South Bihar Sugar Mills, or aluminium cans with rough uneven
    surface in Union Carbide, or PVC Films in Bhor Industries or hydrolysate
    in Ambalal Sarabhai, the finding in each case on the basis of the material
    before the court was that the articles in question were not marketable and
    were not known to the market as such. The "marketability" is thus essen-
    tially a question of fact to be decided in the facts of each case. There can
G   be no generalisation. The fact !J1at 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
H   so long as they are available for purchasers. Now, in the appeals before us,
                 AP.S.E.B. v. C.C.E.[JEEVANREDDY,J.]                   507

the fact that in Kerala thes~ poles are manufactured by independent A
contractors who sell them to Kerala State Electricity Board itself shows
that such poles do have a market. Even if there is only one purchaser of
these articles, it must still be said that there is a market for these articles.
The marketability of articles does not depend upon the number of pur-
chasers nor is the market confined to the territorial limits of this country.
The appellant's own case before the excise authorities and the C.E.G.A.T. B
was that these poles are manufactured by independent contractors from
whom it purchased them. This plea itself - though not pressed before us -
is adequate to demolish the case of the appellant. In our opinion, therefore,
the conclusion arrived at by the Tribunal is unobjectionable.

       Accordingly, these appeals fail and are dismissed. No costs.
                                                                             c
R.P.                                                    Appeals dismissed.