Holding

The intermediate product is not excisable as it is not marketable; the CEGAT's finding stands.

Summary

The Commissioner of Central Excise challenged the CEGAT order that held an intermediate product prepared by Jagatjit Industries Ltd. from yeast, molasses and water was not liable to excise duty. The respondents bought fresh yeast, mixed it with molasses and water, and propagated it for use in the manufacture of potable alcohol. The revenue argued that the product fell under heading 21.02 of the Central Excise Tariff Act and was therefore excisable, while the respondents contended that they were not manufacturing yeast and that the propagated mixture was not marketable. The Supreme Court held that the CEGAT was correct because the department failed to prove that the intermediate product was marketed or marketable, and the burden of such proof lies on the revenue. Consequently, the appeals were dismissed.

Issues considered

Whether the intermediate product obtained by propagating yeast with molasses and water is liable to excise duty under heading 21.02 of the Central Excise Tariff Act, 1985.
Whether the product is "marketable" for the purpose of attracting excise duty.
Whether the process adopted by the respondents amounts to the manufacture of yeast.

Legislation cited

Central Excise Tariff Act, 1985

Subjects

central exciseexcise dutyyeastintermediate productmarketabilitymanufacturetariff heading 21.02propagationalcoholCEGAT

Judgment

' ! "

./A THE COMMISSIONER OF CENTRAL EXCISE,
CHANDIGARH-II, C~NDIGARH
v.
MIS. JAGA TJIT INDUSTRIES LTD.

MARCH 15, 2002
B
[M.B. SHAH AND B.N. AGRA WAL, JJ.]

Central Excise Tariff Act, 1985-Tariff Heading 21.02-Intermediate
C product prepared from yeast-Whether excisable-Held, no, as it was not
proved that such product wps marketed or marketable.

Respondents used to buy yeast from market and prepare intermediate
product of yeast, mollasses and water for the purpose of °!anufacturing
potable alchohol.
D ifhe excise authority by its show cause notice proposed to levy excise
duty on the intermediate product. Assistant Commissioner held the
intermediate product as excisable as the same fell within the category of active
yeast. On appeal, Commissioner (Appeals) held it as not excisable since the
same was having a very short shelflife and because it was not proved whether
E it was either marketed or marketable.

The appeals by the Revenue before Central Excise and Gold Control
Appellate Tribunal (CEGA T) were dismissed upholding the view of
Commissioner (Appeals).
,_
F In appeal to this Court, appellant-Revenue contended that CEGAT was
wrong in holdin~ that yeast was not excisable in view of specific item No. 21.02
of Central Excise Tariff Act which makes yeast as excisable.

Respondents contended that they had never contended before CEGAT
that yeast was not excisable but that they were not manufacturing yeast.
G
Dismissing the appeals, the Court

HELD : The finding given by the Central Excise and Gold Control
Appellate Tribunal (CEGAT) cannot be held to be, in any way, illegal or
r-
erroneous because it has not been proved that such intermediate product is 1----
~
H 500 '
COMMR. OF CENTRAL EXCISE v. JAGATJIT INDUS. LTD. [SHAH, J.] 501

-- marketed or marketable. It would be misreading the order passed by the
CEGAT to hold that it has arrived at the conclusion that yeast is not excisable.
The CEGAT has held that the process adopted by the respondents of
A

purchasing the yeast from the market which is excisable and mixing it with
molasses and water for propagating the same cannot be held to be
manufacture of yeast, as such liquid in mixture form is not marketable.
[503-H; 502-G-H] B
Union ofIndia v. Delhi Cloth & General Mills Co. Ltd... (1997) S SCC 767;
... Collector of Central Excise, Baroda v. Mis. Ambalal Sarabhai Enterprises (P)
Ltd, [1989) 4 SCC 112 and Collector of Central Excise, Baroda v. United
-· ~
Phosphorus Ltd, (2000) 4 SCC 18, referred to.
c
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7769 of
2001.

From the Judgment and Order dated 8.5.2000 of the Customs, Excise
and Gold (Control) Appellate Tribunal, New Delhi in A. No. E/3084/99-D in
F.O. No. 258 of 2000-D. D

-. C.A. Nos. 8460-8483 of 200 I.
WITH

M.L. Verma, G.V. Rao, Rajiv Nanda for B. Krishna Prasad for the E
Appellant.

V. Lakshmikumaran, V. Sridharan for V. Balachandran for the
,.,....._ Respondent in C.A. No. 77691200 I.

Pankaj Kalra for the Respondent in C.A. No. 8460-83/200 I. F
The Judgment of the Court was delivered by

SHAH, J. The Commissioner of Central Excise, Chandigarh has
challenged the order dated 8th May 2000 passed by the Customs, Excise and
Gold (Control) Appellate Tribunal, New Delhi (for short referred to as
G
... ''CEGA T') in Appeal No. E/3084/99-D etc., by which the Tribunal dismissed
the appeals preferred by the revenue involving the common question - whether
•
the respondents were engaged in the manufacturing/propagation of yeast
leviable to central excise duty. Hence, these appeals.

Therefore, the short question involved in these appeals is - whether the H
'<!."
502 SUPREME COURT REPORTS [2002] 2 S.C.R.

A 'yeast' propagated by the respondents having self-life of 6-8 hours which can
be preserved in containers was excisable to the customs duty under description
of heading 21.02 of the Central Excise Tariff Act. The Tariff Heading 21.02
reads thus: -

B Heading Sub-Head Description of Goods Rate of Duty.
No. ing No.
21.02 Yeasts (active or inactive); other
single-cell micro-organisms, dead
(but not including vaccines of Chapter
30); prepared baking powders.
c
2102.10 -Put up in unit containers and 10%
ordinarily intended for sale

2102.90 -Other. 10%
D
Learned counsel for the appellant submitted that the order passed by
'\
the CEGAT is on the face of it illegal in view of the aforesaid specific Item
No. 21.02 which makes yeast as excisable. He submits that the CEGAT has
arrived at the conclusion that its life is for 6-8 hours and there is no reason
E to hold that it is not marketed or marketable.

As against this, learned counsel appearing on behalf of the respondents
submitted that the c.pntention raised by the counsel for the appellant is totally
beside the point as it 'Vas never contended by the respondents before the
CEGAT that yeast is-not excisable. What was contended before the CEGAT _JI
F was that respondents were not manufacturing yeast. On the contrary, they
were p•1rchasing yeast from the market and propagating the same for
manufacture of potable liquor.

In our view, it wouid be misreading the order passed by the CEGAT
G to hold that it has arrived at the conclusion that yeast is not excisable. The
CEGA T has held that the process adopted by the respondents of purchasing
the yeast from the market which is excisable and mixing it with molasses and
water for propagating the same cannot be held to be manufacture of yeast,
as such liquid in mixture form is not marketable. In the present case, in the
show cause notice issued by the Assistant Commissioner the process adopted
H by the respondents is mentioned which makes the position clear. It is stated
•

COMMR. OF CENTRAL EXCISE v. JAGA TJITINDUS. LTD, ISHAH, J.] 503

in the show cause notice that party is engaged in manufacture/propagation of A
yeast for captive consumption in manufacture of potable Ethyl Alcohol. For
that purpose, two processes are adopted by the party. Firstly, respondents
purchase fresh yeast of 500 grams packets from the agents of yeast
manufacturing Company. They mix 10 kilograms of fresh yeast with molasses
purchased from the market which is diluted in water in a tank capacity of
10,000 litres, where it is propagated for 13 hours. The said mixture is called B
'BUB' as defined in the Punjab Distillery Rules, 1932. The said BUB is
shifted to fermentation vessel. After fermentation, it is called 'WASH' as
defined in the Distillery Rules. Similarly, the party also purchases yeast culture
procured from the National Chemical Laboratory, Pune. First molasses are
taken in a small flask of 50 ml. and a pinch of yeast from slant or brought C
out yeast is added with the help of Platinum wire. The mixture so obtained
is kept in a particular temperature in BOD incubator for about 21 hours.
Thereafter, the said mixture is later transferred into another flask of 250 ml.
wherein molasses and water is already stored. The process continues and
thereafter the mixture is finally kept in a vessel having capacity of 100000 D
litres. It is also known as 'BUB' vat placed in the fermentation Hall. The
mixture is permitted to ferment. This fermented mixture is used for manufacture
of potable alcohol and, •therefore, this intermediate product of molasses and
yeast is excisable.

On the basis of the show cause notice, the Assistant Commissioner E
after hearing the parties arrived at the conclusion that the manufacturing
process of 'WASH' as given in the show cause notice would be covered
within the category of active yeast as it is produced from culture yeast or

- seed yeast purchased from laboratory or market. The product 'WASH' would
be covered within the category of Baker's yeast. That order was set aside by
the Commissioner (Appeals) by holding that the goods in question were F
having a very short self-life; there was no evidence to prove that such goods
were either marketed or were marketable. That finding is upheld by the
CEGAT.

As stated above, in the appeals before the CEGA T, there was no dispute G
that 'yeast' itself is exigible to duty, but what was contended before the
Tribunal was limited to the so-called product of yeast obtained by propagating
the same by mixing it with molasses and water for manufacture of potable
alcohol. Hence, in our view, the finding given by the CEGAT cannot be held
to be, in any way, illegal or erroneous because it has not been proved that
such intermediate product is marketed or marketable. For this purpose, the H
504 SUPREME COURT REPORTS [2002] 2 S.C.R.

A CEGAT has rightly relied upon the decision of this Court in Union of India
v. Delhi Cloth and General Mills Co. Ltd, (1997] 5 SCC 767. The CEGAT
has also relied upon the decision in Collector of Central Excise, Baroda v.
Mis Ambalal Sarabhai Enterprises (P) Ltd, [l 989] 4 SCC 112 for holding
that in such cases the burden is on the Department to prove that such goods
B · were either marketed or were marketable. Further, this Court in Collector of
Central Excise, Baroda v. United Phosphorus Ltd, (2000] 4 SCC 18 observed
that 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 marketability.

C Hence, there is no substance in these appeals and are dismissed, with
no order as to costs.

K.K.T. Appeals dismissed.