Holding

Intermediate products are not liable to excise duty unless the department proves they are marketable; the Tribunal’s finding that the three chemicals were not marketable is upheld.

Summary

United Phosphorus Ltd., a manufacturer of insecticides, produced three intermediate chemicals during its process. The Collector of Central Excise held these intermediates liable for excise duty, but the Collector (Appeals) reversed the decision, finding them non‑marketable. The Revenue appealed to the Central Excise and Customs Appeals Tribunal, which dismissed the appeal, and the matter reached the Supreme Court. The Court reiterated that excise duty is levied only on "goods" that are marketable – i.e., capable of being bought and sold, even if not actually sold – and that the burden of proving marketability lies on the department. Mere references to the items in dictionaries, tariff schedules, or drawback rules do not satisfy this test. Since the department failed to show that the three intermediates could be marketed, the Court upheld the Tribunal’s view and dismissed the Revenue’s appeal.

Issues considered

Whether intermediate products formed in a multi‑stage chemical process qualify as "goods" liable to excise duty.
Whether the test of marketability is required to deem an article as goods for excise purposes.
Who bears the burden of proving that an intermediate product is marketable.

Legislation cited

Subjects

excise dutyintermediate productsmarketabilitygoodsburden of proofCentral Excise Actchemical processdrawback

Judgment

A COLLECTOR OF CENTRAL EXCISE, BARODA
v.
UNITED PHOSPHORUS LTD.

APRIL 7, 2000

B [S. RAJENDRA BABU AND R.C. LAHOTI, JJ.]

Central Excises and Salt Act, 1944-Excise Duty-Levy of-On inter-
mediate products-Which came into existence at a certain stage of a multiple
stage integrated chemical process-Held, intermediate products may be liable
C to levy of excise duty if they satisfy the test of being goods on the touchstone
of marketability-Onus to establish that an article is 'goods' and maTKetable
is on the department-Indian Evidence Act, 1872-Chapter Vll.

During manufacture of a product by the respondents, three interme-
diate products came into existence as intermediate products. The appel-
D lant passed orders of adjudication holding the three intermediate products
liable to excise duty.

Respondents filed appeal before Collector (Appeals) who allowed
the appeals, exonerating the intermediate products from levy of excise

E
duty, finding that the three intermediate products came into existence at a
certain stage of a multiple stage integrated chemical process leading to the
•
final products and therefore they could not be held to be goods as under-
stood in commercial parlance because they were not marketable and that
the department had failed in showing if any facility existed for separation
of the said three products and whether in the form in which the said three
p products came into existence in the reaction process were capable of being
marketed.

Appellant filed appeal againstthe order of the Collector (Appeals),
before the Tribunal, wherein it did not challenge the finding of fact ar-
rived at by the Collector (Appeals), and the only argument was that the
G three items were mentioned as 'goods' in the dictionary and one of the
goods was mentioned as entitled to drawback in Duty Drawback Rules.
The appeal before the Tribunal was dismissed. Hence this appeal.

Dismissing the appeal, this Court

H HELD : 1. No fault can be found with the view taken by the Tribunal
1062
C.C.E. v. UNITED PHOSPHORUS LTD. 1063
that the mentioning of the items as "goods" in the dictionary and in the A
excise tariff and mere mentioning of an item in Duty Drawback Rules as
one entitled to duty drawback with reference to a different context was not
enough to satisfy the test of marketability unless it was shown that the
intermediate products were capable of being taken to market and bought
and sold. [1065G-H; 1066-A-B]
B
2. Excise is a duty on goods as specified in the Schedule. The taxable
event in the case of excise duty is the manufacture of goods. In Order to be
excisable goods (i) there must be goods (ii) having come into existence as a
result of manufacture, and (iii) to be goods, the article must be known to
the market as such and as :would ordinarily come to the market for being c
bought and sold. Actual sale of the article is not required but it must be
capable of being bought and sold. Intermediate products even if captively
consumed may be liable to levy of excise duty if they satisfy the test of
being goods on the touchstone of marketability. Though the intermediate
goods so coming into existence may be specified in the Schedule as excis-
able they would not be subjected to duty unless they satisfy the test of
D
marketability. [1064-E-G; 1065-B-C]

Bhor lndusties l.Jd. v. Collector of Central Excise, (1989) 40 ELT 280
SC; Union of India v. Delhi Cloth and General Mills Co. l.Jd., (1997) 92 ELT
315 SC and Moti Laminates Pvt. l.Jd. v. Collector of Central Excise, E
Ahmedabad, (1995) 76 ELT 241 SC, relied on.

3. Onus to establish that an article is 'goods' and marketable, is on
the department.

Collector v. Amba Lal Sara Bhai Enterprise, (1989) 43 ELT 214 SC, F
referred to.

CIVIL APPELLAIB JURISDICTION : Civil Appeal Nos. 8999-9000 of
1996.

From the Judgment and Order dated 15.11.95 of the Central Excise G
Customs and Gold (Control) Appellate Tribunal, New Delhi in A. No. E/796/
92-C and E/3103/93-C.

Gauri Shankar Murti, K.C. Kaushik and P. Panneshwaran for the
Appellant. H
1064 SUPREME COURT REPORTS [2000] 2 S.C.R.
A Dushayant A. Dave, Jay Savla, J.K. Das and N. Menon for the
Respondent.

The Judgment of the Court was delivered by

R.C. LAHOTI, J. The respondents are engaged in the manufacture of
--
f

B insecticides, fungicides, weedicides and pesticides falling under Tariff sub-
heading 3808.10 and excisable thereunder. During the process of manufactur-
ing Mercuric Acetate (MA), Para Chloro Phenyl Valerie Acid (PCA), and
Chloro Synthemic Acid Chloride (CSA Chloride) came into existence as
intermediate products. The Collector of Central Excise passed orders of
adjudication holding the abovesaid three intermediate products liable to
c payment of excise duty. The respondents preferred appeals before the Collec-
tor (Appeals) who has allowed the appeals exonerating the said three interme-
diate products from levy of excise duty. The appeals preferred by the Revenue
against the order of Collector (Appeals) have been dismissed by a common
order by the CEGAT. The aggrieved Revenue has come up by filing these
D appeals to this Court

It is well settled by a series of pronouncements of this Court from Blwr
Industries Ltd. v. Collector of Central Excise, (1989) 40 ELT280 SC to Union
of India v: Delhi Cloth and General Mills Co.Ltd., (1997) 92 ELT 315 SC that
excise is a duty on goods as specified in the Schedule. The taxable event in
E the case of excise duty is the manufacture of goods. In order to be excisable
goods (i) there must be goods (ii) having come into existence ·as a result of
manufacture, and (iii) to be goods, the article must be known to the market
as such and as would ordinatily come to the market for being bought and sold.
Actual sale of the article is not required but it must be capabale of being
F bought and sold. Intermediate products even if captively consumed may be
liable to levy of excise duty if they satisfy the test of being goods on the
touchstone of marketability. In Union of India v. Delhi Cloth & General Mills
Co. Ltd., (1997) 92 ELT 315 SC the following statement of law from Moti
Laminates Pvt. Ltd v. Collector of Central Excise, Ahmedabad, (1995) 76 ELT
241 (SC) has been re-affirmed:-
G
"The duty of excise being on production and manufacture which
means bringing out a new commodity, it is implicit that such goods
must be usable, moveable, saleable andmarketable. The duty is on
manufacture or production but the production or manufacture .is
H carried on for taking such goods to the market for sale. The obvious
-
C.C.E. v. UNITED PHOSPHORUS LTD. [R.C. LAHOTI, J.] 1065

A
' - 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 purposes of buying and selling."

(underlining by us)
B
Though the intermediate goods so coming into existence may be
specified in the Schedule as excisable they would not be subjected to duty
unless they satisfy the test of marketaliility. In the case of Delhi Cloth and
General Mills Co. l.Jd. (supra) the intermediate product was calcium carbide,
which initially produced in the form of cakes, was broken into smaller pieces c
after the cakes attained room temperature and the broken pieces were
forthwith put into use for the production of acetylene gas. The Appellate
Collector had found that the calcium carbide which was sold in the market
was packed in airtight containers and conformed to ISi specifications which
the intermediate product of DCM did not. Their Lordships held that as the
calcium carbide manufactured by the DCM for further utilisation in the D
production of acetylene gas was not of a purity that rendered it marketable
nor was it packed in such a way as to make it marketable, that is to say, in
airtight containers it was not excisable on the ratio of Moti Laminates. As held
in Collector v. Amba Lal Sara Bhai Enterprise, (1989) 43 ELT 214 SC onus
to establish that an article is "goods" and marketable, is on the department. E
In the case at hand the Collector (Appeals) has found that the abovesaid
three intermediate products came into existence at a certain stage of a multiple
stage integrated chemical process leading to the final products and therefore
they could not be held to be goods as understood in commercial parlance
because they. were not marketable. The department had failed in showing if
F
any facility existed for separation of the said three products and whether in
the form in which the said three products came into existence in the reaction
process were capable of being marketed. The finding of fact so arrived at has
not been challenged much less dislodged before the Tribunal. The only
argument advanced before the Tribunal was that the three items were men- G
tioned as "goods" in the dictionary and in .the excise tariff and Mercuric
Acetate (MA) was also mentioned as one of the items entitled to drawback in
Duty Drawback Rules. The Tribunal has observed that these facts and mere
mentioning of an item in Drawback Rules with reference to a different context
was not enough to satisfy the test of marketability unless it was shown that H
1066 SUPREME COURT REPORTS [2000] 2 S.C.R.
A the intermediate products were Clipable of being taken to market and bought
and sold.
-
No fault can be found with the view taken by the Tribunal. The appeals
are devoid of any merit and hence are dismissed though without any order as
to the costs.
B
K.K.T. Appeals dismissed.