UNION CARBIDE INDIA LIMITEDversusUNION OF INDIA AND ORS.

    162
A

                      UNION CARBIDE INDIA LIM.ITED
                                  Vo
                       UNION OF INDIA AND ORS.

                             APRIL 4, 1986
B                                                                 +
              [R.S. PATHAK, A.P. SEN AND D.P. MADON, JJ.]

          Central Excise and Salt Act, 1944, s. 3 and Entry 27 of
    First Schedule - Aluminium cans for torch bodies - Whether 1
    excisable goods.                                            -~ ·
c
          Words & Phrases - "Excisable goods" - Meaning of.       f-·

            lhe appellant, a public limited company, carries on the
    business of the manufacture and sale of flashlights (torches).
    It used to purchase aluminium slugs and produce aluminium cans
D   or torch bodies at its factory by a process of extrusion. lhe
    Superintendent of Central Excise required the appellant to
    submit a price list in respect of the aluminium cans for the
    purpose of levying excise duty under section 4 of the Act. lhe 'r
    appellant, anxious to avoid coercive action, filed a price
    declaration in which the price of aluminium cans was
E   calculated at the cost of production plus a margin of profit
    of 5% of the cost. However, it contended before the Excise
    Authority (i) that aluminium cans cannot be described as
    "goods" for the purposes of excise duty inasmuch as they are
    not marketable and are prepared for the flashlights
    manufactured by it; and (ii) that the preparation of aluminium
F   cans out of aluminium slugs did not amount to manufacture, and
    that aluminium cans were merely an intermediate product in the
    manufacture of flashlights. lhese contentions before the
    Excise Authority having failed, it filed a writ petition in
    the High Court. A Single Judge allowed the writ petition but a
    Di vision Bench of the High Court allowed the appeal of the
G   respondent holding that the production of aluminium cans from
    aluminium slugs amounted to manufacture and that the aluminium 'r
    cans could be described as "goods" for the purposes of the
    Act.

          Allowing the appeal,
H
                           UNION CARBIDE LTD. v. U.O.I,              163
                                                                            A

    ~           HELD: 1. The aluminium cana produced by the appellant
         are not capable of sale to a consumer.. They cannot be
         described as excisable goods and, therefore, do not fall
         within the terms of section 3 of the Central Excises and Salt
         Act, 1944 read with Entry 27 of the First Schedule thereto.        B
         [ 167 G]

               2. The 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 produced" 1111st refer to articles which are capable of being
         sold to a consumer. (166 B-C]                                      c
               Union of India v. Delhi Cloth & General Milla, [ 1963)
         Supp. l s.c.R. 586 and Sooth lihar Sagar tll.lls Ltd. etc. v.
    ·~   Onion of India &Ors., (1968] 3 s.c.R. 21, relied upon.

            In the instant case, the aluminium cans prepared by the         D
     appellant are employed entirely by it in the manufacture of
     flashlights, and are not sold as aluminium cans in the market•
     The record discloses that the aluminium cans, at the point at
     which excise duty has been levied, exist in a crude and
     elelll!ntary form incapable of being employed at that state as a
  Y component in a flashlight. The cans have sharp uneven edges             E
     and in order to use them as a component in making flashlight


-
     cases the cans have to undergo various processes such as
     triming, threading and redrawing. After the cans are tri~,
     threaded and redrawn they are reeded, beaded and anodised or
•    painted. It is at that point only that they become a distinct
     and coll(llete component, capable of being used as a flashlight        F
     case for housing battery cells and having a bulb fitted to the
   \ case. Therefore,      it is difficult to believe that the
     elementary and unfinished form in which they exist i-diately
     after extrusion suffices to attract a llllrlcet. No satisfactory
     llllterial to the contrary has been placed by the respondents.
     The record discloses that whatever alwal.nium cans are produced        G
     by the appellant are subeeqnently developed by it into a
     co11111leted and perfected component for being employed as
     flashlight cases. (166 E-H; 167 A-C;)
    -t
                  CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1103 of
          1972.                                                             H

               From the Judgment and Order dated 22nd February, 1972 of
         the Allahabad High Court in Special Appeal No. 307 of 1971.
    164                  SUPREME COURT REPORTS        (1986] 2 S.C.R.

A
          Dr. Y.S. Chitale, T.M. Ansari, P.K. Ram and D.N. Mishra
    for the Appellant.

          R. Thyagarajan,   A.   Kumar   and   R.N.   Poddar for   the
    Respondents.

B         The Judgment of the Court was delivered by

          PATIIAK, J. This appeal by certificate granted by the           +
    High Court of Allahabad raises the question whether the


c
    manufacture of aluminium cans or torch bodies is liable to
    excise duty under Entry 27(e) of the First Schedule to the
    Central Excises and Salt Act, 1944.

           The appellant , The Union Carbide India Limited, is a
                                                                         .A,.
                                                                                -
    public limited company and carries on the business of the
    manufacture and sale of flashlights (torches), dry cell
    batteries, chemicals and plastics. The flashlights are
0   manufactured by one of its Divisions, the Eveready Flashlight
    Company, U!cknow. The appellant purchases aluminium slugs from
    the manufacturers of aluminium in India and produces aluminium
    cans or torch bodies at its factory by a process of
    extrusion. Before March 1, 1970 aluminium cans were subjected
    to basic excise duty at 20 per cent ad valorem plus special
E   duty at 20 per cent of the basic duty on a value of Rs. 8,600
    per metric tonne fixed as the tariff value by the Gover~nt
    of India by a Notification dated January 21, 1969. By an
    amendment incorporated in the Finance Act 1970 with effect
    from March 1, 1970 the basic duty was fixed at 25 per cent ad
    valorem plus special duty at 20 per cent of the basic duty. By        r
                                                                            -
F   Notification No. 65/70 dated March 1, 1970 the Notification of
    January 21, 1969 was rescinded.
                                                                          j
          The appellant recceived a letter dated March 3, 1970
    from the Superintendent of Central Excise, U!cknow stating
    that the tariff rate of duty on extruded shapes and sections
G   of aluminium had been raised and that aluminium cans would be
    subjected to duty on ad valorem basis on the value as
    determined under section 4 of the Act, and that the appellant
    should send price lists for approval. The appellant, anxious
    to avoid coercive action, filed price declarations in which
    the price of aluminium cans was calculated as the cost of
H
                   UNION CARBIDE LTD. v. U.O.I. [PATHAK, J,]         165

                                                                            A
       production plus a margin of prof it of 5 per cent of the cost.
       The appellant, however, took the position that aluminium cans
       were neither sold nor were capable of being sold in the
       market, and therefore could not be described as 'goods' for
       the purposes of the Central Excises and Salt Act, 1944. It was
       also asserted that the preparation of aluminium cans out of          B
       aluminium slugs did not amount to manufacture, and that
       aluminium cans were merely an intermediat1l products in the
       manufacture of flashlights. The contentions of the appellant
       did not find favour with the excise authorities.

                The appellant filed a writ petition in the High Court of
    ,,<. Allahabad for a manda111.1s directing the excise authorities not   C
         to levy and collect excise duty on aluminium cans, and to
   -~    refund the excise duty levied and collected from the appellant
         on aluminium cans from March 1, 1965. A learned Single Judge
         of the High Court allowed the writ petition by his judgment
         and order dated April 15, 1971, but on appeal by the Union of
         India a Division Bench of the High Court reversed the judgment     D
         an.. order of the learned Single Judge and dismissed the writ
         petition on February 22, 1972. Before the learned Judges an
         attempt was made by the appellant to show that the process
   r employed in the preparation of the aluminium cans could not be
         described as a process of "extrusion" but in fact should
         properly be described as a process of "impact extrusion". The      E
         learned Judges were not impressed by the             distinction
         attempted by the appellant and held that the manufacture of
         the aluminium cans fell under Entry 27(e) of the First
         Schedule to the Central Excises and Salt Act, 1944, which
         refers to "extruded shapes and sections including extruded
    \    pipes and tubes". The learned Judges pointed out further that      F
         even otherwise the aluminium cans would fall under Entry 27(d)
         which mentions "pipes and tubes other than E!Xtruded pipes and
         tubes", and inasmuch as the rate of duty was the same the
         point raised by the appellant was of no significance. The
         learned Judges also held that the production of aluminium cans
         from aluminium slugs amounted to manufacture and that the          G
.•       aluminium cans could be described as "goods" for the purposes
   "t    of the Central Excises and Salt Act, 1944.

              The only contention urged by the appellant before us is
        that the aluminium cans produced by the appellant cannot be
                                                                            H
    166                  SUPREME COURT REPORTS     [1986] 2 s.c.R.
A
    described as "goods" for the purposes of excise duty inasmuch    }-
    as they are not marketable and are prepared entirely by the
    appellant for the flashlights manufactured by it.

          It does seem to us that in order to attract excise duty
    the article manufactured must be capable of sale to a
B
    consumer. Entry 84 of List I 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
                                                                           ...
c   manufactured or produced" must refer to articles which are ->., ..
    capable of being sold to a consumer. In Union of India v.
    Delhi Cloth & General Mills, [1963] Supp. 1 S.C.R. 586, this ;_.
    Court considered the meaning of the expression "goods" for the
    purposes of the Central Excises and Salt Act, 1944 and
    observed that "to become 'goods' an article rwst be something
D
    which can ordinarily come to the market to be brought and
    sold", a definition which was reiterated by this Court in
    South Bihar Sugar Mills Ltd., Etc. v. Union of India & Ors.,
    [1968] 3 S.C.R. 21.

           The question here is whether the aluminium cans
E
    manufactured by the appellant are capable of sale to a
    consumer. It appears on the facts before us that there are
    only two manufaturers of flashlights in India, the appellant
    being one of them. It appears also that the aluminium cans
    prepared by the appellant are employed entirely by it in the     '(-
                                                                           -
    manufacture of flashlights, and are not sold as aluminium cans
F
    in the market. The record discloses that the aluminium cans,     )
    at the points at which excise duty has been levied, exist in a
    crude and elementary form incapable of being employed at that
    stage as a component in a flashlight. The cans have sharp
    uneven edges and in order to use them as a component in making
    flashlight cases the cans have to undergo various processes
G
    such as trirrming, threading and redrawing. After the cans are
    trimmed, threaded and redrawn they are reeded, beaded and              /
    anodised or painted. It is at that point only that they become
    a distinct and complete component, capable of being used as a
    flashlight case for housing battery cells and having a bulb                •
    fitted to the case. We find it difficu~t to believe that the
H
    elementary and unfinished form in which they exist immediately

                                                                                   '·
                  UNION CARBIDE LTD. v. U.O.I. [PATHAK, J.]      167

                                                                        A
·-f after extrusion suffices to attract a market. The appellant
    has averred on affidavit that aluminium cans in that form are
    unknown in the market. No satisfactory material to the
    contrary has been placed by the respondents before us.
    Reference has been made by respondents to the instance when
    aluminium cans were ordered by the appellant from Messrs.           B
    Krupp Group of Industries. This took place, however, in 1966
  +-as a solitary instance, and what happened was that aluminium
    slugs were provided by the appellant to Messrs. Krupp Group of



-
    Industries for extrusion into aluminium cans. The facts show
    that the transaction was a works contract and nothing more.
    Apparently, the appellant made use of the requisite machinery
. .4owned by that firm for extruding aluminium cans. Not a single       c
    instance has been provided by the respondents demonstrating
 ·~ that such aluminium can have a market. The record discloses
    that whatever aluminium cans are produced by the appellant are
     subsequently developed by it into a completed and perfected
     component for being employed as flashlight cases.
                                                                        D
             Much emphasis has been laid by the respondents on the
       circumstance that the appellant had in the past treated the
       aluminium cans produced by it as excisable goods and had
    y submitted price lists to the excise authorities which included
       a margin of profit in the specified price. It is clear that
       the appellant did so under the mistaken belief that the          E


-      aluminium cans attracted excise duty. The margin of profit
       included in the price was arrived at notionally, in order
       merely to comply with the demand of the excise authorities for
    ~ the submission of price lists. The conduct of the appellant in
       the past, having regard to the circumstances of the case,
     " cannot serve as evidence of the marketability of the aluminium   F
       cans. Indeed, subsequent price lists were submitted under
       "protest" by the appellant, who maintained that the article
       did not attract excise duty.

              We are satisfied upon the material before us that the
        aluminium cans produced by the appellant cannot be described    G
        as excisable goods and therefore do not fall within the terms
    r   of s.3 of the Central Excises and Salt Act, 1944 read with
        Entry 27 of the First Schedule thereto.

              In the result, the appeal is allowed, the judgment and
        order dated February 22, 1972 of the Division Bench of          H
                                                                 the
    168                 SUPREME COURT REPORTS     [19861 2 s.c.R.

A
    High Court of Allahabad are set aside and the judgment andl-
    order dated April 15, 1971 of the learned Single Judge of that
    High Court are restored. The appellartt is entitled to its
    costs of this appeal.


B
    M. L.A.                                       Appeal allowed.-+




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