Union of India & ANR Vs. Delhi Cloth
& General Mills Co. Ltd. & ANR  INSC 516 (6 May 1997)
S.P. BHARUCHA, S.C. SEN, M. JAGANNADHA RAO
civil appeal arising upon the judgment and order of a Division Bench of the Delhi
High Court was referred to a larger bench on 11th March, 1997 (1997(91) E.L.T.
respondent company manufactured and sold calcium carbide in the market until
the year 1967. Thereafter it, utilised the calcium carbide that it manufactured
in the process of the production of acetylene gas in its acetylene gas plant.
The calcium carbide that was manufactured wax tapped from the furnace in liquid
form, placed in trays, allowed to cool and solidify and thereafter broken into
cakes of the required size. Called upon to pay excise duty on such calcium
carbide, the respondent contended that it was not excisable being an
intermediate product used for the generation of acetylene gas in the factory of
order of the Superintendent Central Excise, Kota Division, being against the
respondent, it preferred an appeal to the Appellate Collector, Central Excise, New Delhi. He enquired into the process of
manufacture of the calcium carbide in the respondent's factory and observed
that the enquiry had confirmed the respondent's contention that the calcium
carbide produced in its factory was an intermediate product and was not
marketed by the respondent.
enquiry also revealed that the calcium carbide, which was initially produced in
the form of cakes, was broken into smaller pieces after the cakes attained room
temperature and the broken pieces were forthwith put into use for the
production of acetylene gas. The Appellate Collector added:
confirms their contention that the calcium carbide is not produced to the
purity as required in the specification laid down by the Indian Standards
1040/60 nor the carbide is packed in any containers for the purpose of storage
for any length of time.
Appellate Collector noted that the calcium carbide which was sold in the market
was packed in airtight containers and conformed to the I.S.I, specifications.
he declined to accept the respondents' contention that the calcium carbide
produced by it, being not marketed as such, was not an excisable commodity. In
his view, calcium carbide as occuring at Tariff Item 14AA(1) had not been
qualified by any description so that the calcium carbide produced in the
respondents' factory was excisable.
order of Appellate Collector was upheld by the Government of India in revision.
It was found that in chemical description and physical properties what was
manufactured by the respondent was calcium carbide irrespective of whether or
not it conformed to any specification. The respondent thereupon filed a writ
petition before the Delhi High Court and, by the order under appeal, the writ
petition was allowed, it being found that the calcium carbide manufactured by
the respondents was not marketable.
this civil appeal against the Delhi High Court's judgment reached hearing
before a bench of two learned Judges, counsel on behalf of the respondent
relied upon the judgment of a bench of three learned Judges of this Court in
the case of Moti Laminates Pvt. Ltd. vs. Collector of Central Excise, Ahmedabad,
1995 (76) E.L.T. 241, and contended that goods which were not marketable or
acceptable in the market as a commercial commodity could not be subjected to
excise duty. The bench was of the view that, reliance having been placed on the
Moti Laminates judgment, this appeal should be heard by d larger bench. The
papers having been placed before the Hon'ble the Chief Justice, the appeal is
now placed before us.
first question to which we address ourselves is whether the Moti Laminates
judgment requires to be looked into again. Sahai, J., speaking for the bench of
three learned Judges, noted that excise duty was levied by virtue of the
provisions of Entry 84 of List 1 of the Seventh Schedule of the Constitution on
goods which were manufactured or produced, which was why the charge under
Section 3 of the Central Excise and Salt Act was on all excisable goods
produced or manufactured. The expression "excisable goods" had been
defined by clause (d) of Section 2 to mean goods specified in the Schedule. The
scheme in the Schedule was to divide goods into two broad categories, those for
which rates were mentioned under different entries and goods under the
residuary entry. The word `goods' had not been defined in the said Act but it
had to be understood in the sense in which it had been used in Entry 84 of the
Schedule, That was why Section 3 levied duty on all excisable goods mentioned
in the Schedule provided they were produced and manufactured. The learned Judge
where the goods are specified in the Schedule they are excisable goods but
whether such goods can be subjected to duty could depend on whether they were
produced or manufactured by the person on whom duty is proposed to be levied.
The expression "produced or manufactured" has further been explained
by this Court to mean that the goods so produced must satisfy the test of
it is always open to an assessee to prove that even though the goods in, which
he was carrying on business were excisable goods being mentioned in the
Schedule but they could not be subjected to duty as they were not goods, either
because they were not produced or manufactured by it or if they had been
produced or manufactured they were not marketed or capable of being marketed.
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 and marketable. The duty is on manufacture or production but the
production or manufacture is carried on for taking such goods to the market for
sale. The obvious rationale for levying excise duty linking it with production
or manufacture is that the goods 50 produced must be a distinct commodity known
as such in common parlance or to the commercial community for purposes of buying
was placed for the above findings on the judgments of this Court in Union of
India vs. Delhi Cloth & General Mills Co. Ltd., AIR 1963 S.C. 791, South
Bihar Sugar Mills Ltd., vs. Union of India, AIR 1968 S.C. 922, A.P. Seb vs.
C.C.E. 1994 (2) S.C.C. 428, Union Carbide India Ltd. v. Union of India, 1986
(2) S.C.C. 547, Bhor Industries Ltd. vs. C.C.E., 1989 (1) S.C.C. 602, Hindustan
Polymers vs. C.C.E. 1989 (1) S.C.C. 323, and Indian Cable Co. Ltd., Calcutta
vs. Collector of Central Excise, Calcutta & Ors. 1994 (6) S.C.C. 610.
have perused the Moti Laminates judgment with care and have heard learned
counsel. We find that the view expressed in the Moti Laminates judgment is
based on earlier judgments. It has been affirmed by this Court thereafter. We
may refer to one such later judgment, Dharangadhra Chemical Works Ltd. vs.
Union of India, 1997 (91) E.L.T. 253, and that is also by a bench of three
learned Judges. We do not entertain any doubt as to the correctness of the
ratio of the Moti Laminates judgment. We proceed with the appeal on the basis
that it lays down the correct law.
counsel for the appellant submitted that the calcium carbide manufactured by
the respondents was marketable and he relied in this behalf upon the orders of
the Appellate Collector and Government of India, to which we have made
reference. He also submitted that the calcium carbide manufactured by the
respondents was in fact marketed till 1967.
order of the Collector shows that the calcium carbide that was manufactured by
the respondent for further utilisation in the 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. This is a finding
of fact. Applying the ration of the Moti Laminates judgment thereto, we must
hold that the calcium carbide manufactured by the respondents is not excisable.
counsel for the appellant submitted that Tariff Entry 14AA(1) was attracted,
whatever might be the further process that the calcium carbide manufactured by
the respondent might have to undergo by way of purification or packaging for
that would not be tantamount to further manufacture. We are unable to agree for
the simple reason that the commodity which is sought to be made liable to
excise duty must be a commodity that is marketable as it is and not a commodity
that may by further processing be made marketable.
result, the appeal is dismissed with no order as to costs.