Holding

Purchases of organic surface active agents from Industrial General Products Pvt. Ltd. are deemed to be from the open market, so Ahura Chemical Products is entitled to the exemption under the 1968 Notification.

Summary

Ahura Chemical Products Pvt. Ltd. manufactured emulsifiers and wetting agents and bought organic surface active agents from Industrial General Products Pvt. Ltd., a supplier exempt from excise duty because it manufactured without power. Under a 1968 Government Notification, such emulsifiers are exempt from excise duty if either (a) duty has already been paid on the surface agents, or (b) the agents are purchased from the open market after 20 January 1968. The excise authorities held that the purchase from the exempt supplier did not satisfy the ‘open market’ condition and denied the exemption, leading to a demand for duty. The company appealed, arguing that the purchase was indeed from the open market. The Supreme Court examined the meaning of “open market” and held that bulk sales of industrial chemicals made available to any buyer on request constitute purchases from the open market, irrespective of the seller’s own exemption. Consequently, the Court allowed the appeal, granting the exemption and setting aside the excise orders.

Issues considered

What is the meaning of ‘open market’ in the 1968 Notification concerning exemption of emulsifiers and wetting agents?
Whether purchase of organic surface active agents from a manufacturer exempt from excise duty can be treated as a purchase ‘from the open market’ for the purpose of the exemption?
Is the condition that duty must have been paid on the raw material relevant when the second condition (open market purchase) is satisfied?

Legislation cited

Central Excise and Salt Act, 1944s. 36
Indian Tariff Act, 1934s. 2A

Subjects

excise dutyexemptionopen marketindustrial chemicalsnotification interpretationcentral exciseraw material purchase

Judgment

621 A

AHURA CHEMICAL PRODUCTS PVT. LTD.
v.
UNION OF INDIA
B
September, 3, 1981

(P.N. BHAGWATI AND V. BALAKRISHNA BRAD!, JJ.]

Central Excise and Salt Act 1944, Notification-Word cropen market"-
Meaning of, C
The appellant company manufactured various process chemicals required
for the Textile Industry. The process chemicals so manufactured by them are
substances known as emulsifiers and wetting out agents and they fall within the
scope of tariff item 1SAA of the first schedule to the Central Excise and Salt
Act 1944. The appellant purchased 164500 kgs. of organic surface active ag~nts
from the "Industrial General Products Pvt. Ltd.". The organic surface active D
agents sold to the appellant by the Industrial General Products Pvt. Ltd. had not
been subjected to the levy of excise duty in as much as the said supplier company
was eligible for exemption from payment of Excise Duty on account of the fact
that the goods were manufactured by it without the aid of power.

Emulsifiers/wetting out agents etc. intended for use in any industrial pro-
cess were exempted from the levy of duty under entry 15AA, by a notification E
dated 20.1.1968 issued by the Government of India, subject to the condition that
if in respect of surface active agents used in the manufacture of such emulsifiers,
wetting out agents, softners and other 1ike preparations the appropriate amount
of the duty of excise or the additional duty under section 2A of the Indian
Tariff Act 1934 (32 of 1934), has already been paid or where such surface active
agents are purchased from the open market on or after the 20th day of January.
1968. F
It is common ground that the ' organic surface active agents used by the
appelJant as raw-material for the manufacture of emulsifiers/wetting out agents
were purchased by it subsequent to the 20th day of January, 1968. The Central
Excise authorities originally treated the manufactured product, namely the emul-
sifiers etc. as exempt from levy of duty by virtue of the Notification dated
January 20, 1968. But, subsequently by a notice dt. Augu•t 6, 1974 issued by the G
superintendent of Central Excise, the appellant was directed to show cause why
an amount of Rs. 1, 21,709.57 should not be recovered from the appellant by
way of excise duty in respect of the period August 1973 to February 1974 on the
ground that the said amount 1epresented escaped duty in respect of the emulsi-
fiers/wetting out agents manufactured by the appellant during the aforesaid
period. The appellant in reply contended that it was entitled to the benefit of 8
exemption from levy of duty in respect of the manufactured products under the
notification dated 20.1.1968. This contention was rejected by the Assistant
622 SUPREME COURT REPORTS [1982] l s.c.F:,

A Collector and his order was confirn1ed by the appellate collector of centniJ
excise.

A revision petition filed by the appellant before the respondents (union of
India) was rejected by order dated August 3, 1978 wherein the Central Govern-
ment took the view that "purcha~es made from a particular manufacturer, the
production from whose factory is exempt from payment of duty, being manufac-
8 tured without the aid of power, cannot be treated at par with purchases made
from the open market". In the appeal filed by special leave, it was contended
that the condition that the surface active agents should have been purchased frorn
the 'open market' on or after the 20th day of January 1968 was fully satisfied in
the present case, and hence the appellant was entitled to the benefit of the exemp-
tion granted by the Notification.

c Allowing the appeal,

HELD : I. The appellant Company is entitled to the benefit of the exemp-
tion granted by the Notification dated January 20, 1968 in respect of the emulsi-
fiers, wetting out agents, softners etc. manufactured by the Company for us,e
during the relevant period (August 1973 to February 1974). [628 G]

D 2. In determining the eligibility of a person for the benefit of the exemptio11
conferred by the Notification on the basis of the fulfilment of the second of tbe
aforementioned conditions, it is wholly irrelevant to enquire whether duty of
excise had already been paid in respect of the surface active agents purchased and
utilised as raw material for the manufacture of the emulsifiers/wetting out
agents. [627 A·B]

E 3. Having due regard to the context in which the expression '•open market"
has been used in the Notification, it would be wholly wrong to understand tht}
said expression "open market" as connoting only a market-yard, bazar or a
shopping complex where goods are offered for sale. Industrial Chemicals (which
have to be ordinarily purchased in bulk for use as raw-material in the manu-
facture of secondary products) are not commodities that are usually exposed
for sale in bazars and shops. Such bulk purchases of chemicals etc., are effected
F by placing orders with the concerned manufacturing units. [627 E-G]

4. If the transactions of sale and purchase are effected under condition::;
enabling every person desirous of purchasing the goods in question to place~
orders with such manufacturing unit and obtain supplies, they will constitute:
purchases "from the open market". [627 G-H, 628 A]
G
Inland Revenue Commissioners v. Clay, [1914] 3 K.B. 466 referred to.

5. In the present case, it was open to every person desirous of purchasing
the surface active agents to place orders with the manufacturing company, namely
M/s Industrial General Products Private Limited, and obtain the supply on pay ..
H ment of the price at the prevailing rate. The sales by the said Company were not
to a limited class only. Hence, the purchases of the surface active agents effected
by the appellant frcim M/s Industrial General Products Private Limited have to
AHURA CHEMICALS v. U.0.1. (Balakrishna Eradi, J.) 623

be treated as purchases made "from the open market". The denial to the appel- A
lant of the benefit of the ex:emption provided for by the Notification was, there·
fore, clearly illegal. [628 D-F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 220 I of
1978.

From the judgment and order dated the 13th September, 1978
of the Central Govt., Ministry of Finance Department of Revenue,
New Delhi in Order No. 819 of 1978.

V. J. Taraporavala, J. B. Dadachanji and Shri Narain for the
appellants.
c
N.C. Talukdar and R.N. Poddar for the Respondent.

The Judgment of the Court was delivered by

) BALAKRISHNA ERADI, J. This appeal by special leave is
directed against an Order dated August 3, 1978 passed by ~the D
Government of India under Section 36 of the Central Excise and
Salt Act, 1944 (hereinafter referred to as the Act), rejecting a
Revision Petition filed by the present appellant and confirmingjthe
view taken by the Appellate Collector of Excise, Bombay, that the
appellant herein is not entitled to the benefit of the exemption from
duty of excise conferred by a Notification No. 4/68-CE dated E
January 20, 1968.

The appellant-Company which has its factories at Sion East
and Andheri East in Bombay is engaged in the manufacture of

- various process chemicals required for the Textile Industry. Amongst
the process chemicals so manufactured by them are substances
known as emulsifiers and wetting out agents. These products fall
within the scope of Tariff Item I SAA of the First Schedule to the
F

Act, which reads:

"Organic Surface Active Agents (other than soap);
Surface Active preparations and washing preparations,
G
whether or not containing soap."

For use as raw-material for the manufacture of the emulsifiers/
wetting out agents, the appellant-Company had purchased a total
quantity of 1,64,500 kgs. of organic surface active agents from H
another company called 'The Industrial General Products Private

'
624 SUPREME COURT REPORTS [1982] I s.C.R.

A Limited'. The aforesaid organic surface active agents sold to the
appellant by the Industrial General Products Private Limited had
not been subjected to the levy of excise duty inasmuch as the said
supplier· Company was eligible for exemption from payment of excise
duty on account of the fact that the goods were manufactured by it
without the aid of power.
B
Emulsifiers/wetting out agents, etc. intended for use in any
industrial process were exempted from the levy of duty under
Entry l 5AA of the First Schedule to the Act, subject to certain
conditions, by a Notification dated January 20, 1968 issued by the
,,.
'L
Government of India. The relevant part of that Notification is in
the following terms :

"The Central Government bas exempted the excisable
foods specified in column (2) of the Table hereto annexed
and falling under this Item from the whole of the duty of
excise leviable thereon subject to the conditions laid down
D in the corresponding entries in column (3) of the said
Table.

TABLE

SI. Description Conditions
No.
E
( l) (2) (3)
I.
2.
3.
F 4. Emulsifiers, wetting out
agents, softness and
If in respect of surface active
agents used in the manufacture
-
other like preparations of such emulsifiers, wetting out
intended for use in any agents, softners and other like
industrial process. preparations ·the appropriate
amount of the duty of excise or
G the additional duty under section
2A of the Indian Tariff Act 1934
(32 ot 1934), has already been
paid or where such surface
active agents are purchased from
H the open market on or after the
20th day of January, 1968.'')
AHURA CHEMICALS V. U.O.J. (Balakrishna Eradi, J.) 625

It is common ground that the organic surface active agents A
used by the appellant as raw-material for the manufacture of emulsi-
fiers/wetting out agents were purchased by it subsequent to the
20th day of January 1968. The Central Excise authorities originally
treated the manufactured product, namely the emulsifiers etc. as
exempt from levy of duty by virtue of the Notification dated January
20, 1968. But, subsequently, by a notice dated August 6, 1974, B
issued by the Superintendent of Central Excise, Inspection Group
No. 1, Bombay Division V, the appellant-Company was directed to
show cause why an amount of Rs. 1,21,709.57 should not be

-
recovered from the Company by way of excise duty in respect of the
period August 1973 to February 1974 on the ground that the said
amount represented escaped duty in respect of the emulsifiers/ c
wetting out agents manufactured by the petitioner-Company during
the aforesaid period.

)
In reply to the said notice, the appellant-Company objected to D
the said demand contending that it was entitled to the benefit of
exemption from levy of duty in respect of the manufactured products
under the Notification dated January 20, 1968 inasmuch as surface
active agents used in the manufacture of the emulsifiers/wetting out
agents had been purchased by the appellant from the open market
after the 2Uth day of January 1968. This contention was rejected E
by the concerned Assistant Collector. He took the view that, in
order to attract the exemption provided for in the aforesaid Notifi-
cation, duty should actually have been paid in respect of the surface
active agents used as raw-material and since the appellant had
purchased the raw-material from a manufacturing unit which was
exempt from the levy of excise duty for the reason that the manu- F
facture was carried out by it without the aid of power, the condi-
tions prescribed in the Notification were not fulfilled. The said
- order was confirmed by the Appellate Collector of Central Excise,
Bombay, before whom the matter was carried in appeal by the
present appellant. While upholding the view taken by the Assistant
Collector that the benefit of the exemption granted by the Notifica- G
tion would be available only in cases where the raw-material,
namely, the surface active agents had been subjected to duty at the
primary stage, the Appellate Collector went further and held that
the purchase of the aforesaid raw-material effected by the appellant
from M/s. Industrial General Products Private Limited could not be
regarded as "purchased from the open market" and that for this 8
626 SUPREME COURT REPORTS [1982] 1 S.C.R

A additional reason also, the appellant was ineligible to claim the
benefit of the exemption.

A Revision Petition filed by the appellant before the Govern-
ment of India was rejected by the Order (Exh. 'A') dated August 3,
1978, wherein the Central Government took the view that "purch'l!les
B made from a particular manufauturer, the production from whose:
factory is exempt from payment of duty, being manufactured with-
out the aid of power, cannot be treated at par with purchases
made from the open market". It is against this order of the Govern-

-
ment of India that the appellant has come up to this Court with
this appeal.
c
The language used in Columns (2) and (3) of the Table appen-
ded to the Notification dated January 20, 1968 is simple and
unambiguous. It shows that the benefit of the exemption will be
available in respect of the emulsifiers/wetting out agents provided
that tither of the following two conditions is fulfilled :
D
(a) Excise duty {inclusive of additional duty under section
2A) should have been already paid in respect of the
surface active agents used as raw-material in the manu-
facture of the emulsifiers, wetting out. agents, etc ...

E (b) The surface active agents used as raw-material for the
manufacture of the emulsifiers/wetting out agents
should have been purchased from the open market on
or after the 20th day of January, 1968.

The first of the aforementioned conditions was obviously not
F satisfied in the present case since the surface active agents were pur-
chased by the appellant-Company from a manufacturer who was
exempt from payment of excise duty on account of the fact that the
process of manufacture was being carried out without the aicl of
power. The appellant-Company contends that the second of the
aforesaid conditions, namely, that the surface active agents should
G have been purchased from the open market on or after the 20th day
of January 1968 was fully satisfied in the present case, and hence it
was entitled to the benefit of the exemption granted by the Notifica-
tion. That the appellant bad purchased the surface active agents
used in the manufacture of the emu!isifiers/wetting out agents subse-
H quent to the 20th day of January, 1968 is undisputed. The
purchases of the raw-material bad been made by the appellant from
AHURA CHEMICALS v. u.0.1. (Balakrishna Eradi, J.) 627

the Industrial General Products Private Limited~ The short question A
to be considered is, whether those transactions of purchase effected
+
by the appellant from the Industrial General Products Private Limi-
ted can be regarded as purchases "from the open market"?

In determining the eligibility of a person for the benefit of the
exemption conferred by the Notification on the basis of the fulfil- ll
ment of the second of the aforementioned conditions, it is wholly
irrelevant to enquire whether duty of excise had already been paid in
respect of the surface active agents purchased and utilised as raw-
material for the manufacture of the emulsifiers/wetting out agents.
The sole question to be examined is, whether the surface active
agents used in the manufacture of the emulsifiers were purchased c
"from the open market" on or after the 20th day of January, 1968?

The Assistant Collector as well as the Appellate Revisional
Authorities have taken the view that the exemption granted by the
) Notiflcation will get attracted only if the surface active agents used
as raw-material had been already subjected to levy of duty at the D
primary stage. In our opinion, the said view is based on an errone-
ous interpretation of the provisions contained in item 4 of the Table
appended to the Notification. The condition that the duty of
excise should have already been paid on the raw-material (surface
active agents) has no application to cases covered by the second
part of Column (3) of SI. No. 4 of the Table, namely, cases where E
the surface active agents were purchased from the open market on
or after the 20th day of January, 1968.

That brings ns back to the question, whether the purchases
effected by the appellant from M/s. Industrial General Products
Private Limited were purchases "from the open market"? Having F
due regard to the context in which the expression "open market"
has been nsed in the Notification, it would be wholly wrong to
nnderstand the said expression "open market" as connoting only
a market-yard, bazar or a shopping complex where goods are offered
for sale. Industrial chemicals (which have to he ordinarily pur-
chased in bulk for use as raw-material in the manufacture of secon- G
dary products) are not commodities that are usually exposed for
sale in bazars and shops. Such bulk purchases of chemicals etc.,
are effected by placing orders with the concerned manufacturing
nnits. In our opinion, if the transactions of sale and purchases are
effected under conditions enabling every person desirous of pur- H
chasing the goods in question to place orders with such manufac-
628 SUPREME COURT REPORTS [1982] I S.C.R.

luring unit and obtain supplies, they will constitute purchases "from
the open market". We may in this context refer with advantage to
the following observations of Swinfen Eady, J. in Inland Revenue
Commissioners v. Clay('), where the Court of appeal had to consider
the scope of the expression "open market" occurring in section 25 (I)
of the Finance Act, 1910 {I 0 Edw. 7, c. 8) :
B
"The market is to be the open market, as distingui-
shed from an offer to a limited class only, such as the
members of the family. The market is not neces-
sarily an auction sale. The section means such amount
as the land might be expected to realize if offered under
c conditions enabling every person desirous of purchasing to
come in and make an offer, and if proper steps were taken
to advertise the property and let all likely purchasers know
that the land is in the market for sale."
We fully agree with these observations. •
D In the present case, it was open to every person desirous of
purchasing the surface active agents to place orders with the manu-
facturing Company, namely, M/s. Industrial General Products Pri-
vate Limited, and obtain the supply on payment of the price at the
prevailing rate. The sales by the said Company were not to a
limited class only. Hence, the purchases of the surface active agents
E effected by the appellant from M/s. Industrial General Products
Private Limite~ have to be treated as purchases made "from the
open market." The denial to the appellant of the benefit of the
exemption provided for by the Notification was, therefore, clearly
iilegal.

F Accordingly, we allow this appeal, set aside the orders passed
by the Government of India, the Appellate Collector, Bombay and
the Assistant Collector of Central Excise, Bombay, and declare that
the appellant-Company is entitled to the benefit of the exemption
granted by the Notification dated January 20, 1968 in respect of the
emulsifiers, wetting out agents, softners etc., manufactured by the
G Company for use during the relevant period (August 1973 to Feb·
ruary 1974). The respondent shall pay costs to the appellant·
Company in this appeal.

N.K.A. Appeal allowed.
H (I) [1914) 3 K.B. 466.