A.P. State Electricity Borad Vs. C. C. E [1994] INSC 76 (1 February
1994)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Hansaria B.L. (J)
CITATION:
1994 SCR (1) 499 1994 SCC (2) 428 JT 1994 (1) 545 1994 SCALE (1)281
ACT:
HEAD NOTE:
The
Judgment of the Court was delivered by B.P. JEEVAN REDDY, J.- The question
raised in this batch of appeals is whether the prestressed cement concrete
poles manufactured by the appellant, Andhra Pradesh State Electricity Board,
are 'goods' within the meaning of Section 3 of the Central Excises and Salt
Act, 1944. Section 3 levies duties of excise "on all excisable goods ...
which are produced or manufactured in India". The expression 'excisable goods' is defined in clause (d) of
Section 2. At the relevant time, the definition ran thus "excisable goods
means goods specified in the Schedule to this Act as being subject to a duty of
excise and includes salt". The expression 'goods' is not defined.
According to the learned counsel for the appellant, goods contemplated by
Section 3 and Section 2(d) are those goods which are ' marketable' and inasmuch
as the poles manufactured by the appellant are not marketable, they are not
goods. It is the correctness of the said submission which we have to examine.
2.The
appellant-Electricity Board requires poles of different sizes, strength and
dimensions for distributing electricity generated by it. The manufacture of
these poles is actually done by the contractors under the direct supervision of
the Board. It is the Board which supplies the requisite material like cement,
concrete and steel. In fact, one of the main contentions 430 raised by the
appellant before the Customs, Excise and Gold (Control) Appellate Tribunal
(CEGAT), besides the one urged in these appeals, was that the manufacture of
the said poles is undertaken by independent contractors and that the Board
merely purchased the same from them. On this basis, it was contended that the
duties of excise must be levied upon the contractors and not upon the
appellant-Board. This plea is, however, not urged by the appellant's counsel
before us.
The
only contention of Shri Shanti Bhushan, learned counsel for the appellant is this
: The poles manufactured by the appellant are of various sizes, strength and
dimensions.
There
are about 100 types of poles. All the poles manufactured by the Board are utilised
for its own purposes.
They
are not sold in the market. In fact, they have no market and are not known to
the market. The excise authorities have not pointed out any instance where
these poles were sold by the Board. They are, therefore, not marketable and
hence, not 'goods' within the meaning of and for the purposes of Central Excise
Act.
3.Shri
Joseph Vellapally, learned counsel for the Revenue, on the other hand,
submitted that the very plea taken by the appellant at an earlier stage that
these poles were manufactured by the independent contractors from whom the
appellant-Board purchased them itself shows that these goods are marketable.
Learned counsel relied upon an order of this Court in CCE v. Kerala State
Electricity Board' wherein this Court accepted the finding recorded by the
CEGAT that the manufacture of poles in that case was done by independent
contractors from whom the Kerala State Electricity Board purchased them.
Counsel pointed out that just as the appellant-Board requires poles of
different sizes, strength and dimensions, so does Kerala Board. The fact that Kerala
Board purchases these poles from contractors clearly establishes the
marketability of these poles. The fact that the appellant does not sell these
poles does not affect the marketability of the said goods.
The
counsel also pointed out that besides Electricity Boards, there are other
establishments engaged in the manufacture of electricity like Tatas in Bombay. They too require poles of
different sizes which may either be manufactured by them or purchased from
independent contractors.
4.Since
the requirement of 'marketability' has been evolved by a process of judicial
interpretation, it would be appropriate to notice the relevant decisions, upon
which strong reliance is placed by Shri Shanti Bhushan.
5.The
first decision is in Union of India v. Delhi Cloth & General Mills2. The
respondent-Mills were engaged in the manufacture of vegetable product known as
'Vanaspati'.
Vanaspati
was subject to duty. It was the common case of both the parties that for the
purpose of manufacturing vanaspati, the respondent-Mills purchased groundnut
and 'til' oil from the market and subjected them to different processes before
applying hydrogenation to produce vanaspati. The stand of the Union of India
was
1.
1963 Supp 1 SCR 586: AIR 1963 SC 791 431 that in the course of manufacture of vanaspati,
the respondent-Mills produced at an intermediate stage what is known as
'refined oil' in the market and although the respondent may not sell it as
such, still it being a marketable product, it was liable to excise duty under
Tariff Item 23 of the Schedule which levied duty on "Vegetable,
non-essential oils, all sorts, in or in relation to the manufacture of which
any process is ordinarily carried on with the aid of power". This stand
was negatived by this Court holding that there could be no refined oil as known
to the market without deodorisation. In other words, non-deodorised refined oil
is not known to market whereas the 'refined oil' obtained by the respondent at
an intermediate stage of production of vanaspati is not deodorised. The
respondent, it was held, applied the process of deodorisation only after
hydrogenation. The Court relied upon the specification by the Indian Standards
Institution to hold that "without deodorisation, the oil is not 'refined
oil' as is known to the consumers and the commercial community".
Accordingly, it held that the ,refined oil' which was obtained by the respondent
at an intermediate stage of production/manufacture of vanaspati was not liable
to duty. The ratio of this judgment is that inasmuch as the 'refined oil'
obtained by the respondent at an intermediate stage of production of vanaspati
cannot be treated as ,refined oil' known to the market and consumers because no
refined oil is ever marketed unless it is deodorised, it is not 'goods' for the
purpose of the Act.
It was
found as a fact that the respondent did not deodorise the 'refined oil' at any
stage; it applied the said process only after hydrogenation.
6.The
second decision relied upon is in South Bihar Sugar Mills Ltd. v. Union of
India3. The appellants were engaged in the manufacture of sugar by carbonation
process. They paid excise duty on the sugar manufactured by them. The
appellants employed a process of burning limestone with coke in a lime kiln
with a regulated amount of air whereby a mixture of gas was generated
consisting of carbon dioxide, nitrogen, oxygen and a small quantity of carbon monoxide.
The
content of carbon dioxide in this mixture of gases ranged from 27 to 36.5%. The
said mixture of gases was compressed so as to achieve pressure exceeding
atmospheric pressure and then passed through a tank containing sugarcane juice
so as to remove impurities from it and refine the juice. Actually, for the
purpose of refining, only carbon dioxide in the gas was used. The remaining
gases escaped into the atmosphere by a vent provided for the purpose. The
Revenue sought to treat the respondent-Mills and other similar mills as
manufacturers of "compressed carbon dioxide" and sought to levy duty
on it under Tariff Item 14- H. The respondent's case was that they maintained
lime kiln to generate a mixture of gases and not carbon dioxide and that at no stage
in the process of generating this mixture and passing it through the sugarcane
juice was carbon dioxide which formed a part of this mixture of gases either
compressed, liquefied or solidified. They contended that the mixture of gases
generated by them was not carbon dioxide, as known to the market, since 432
carbon dioxide as known to market, as per specification laid down by Indian
Standards Institution, meant gas with 99% content of carbon dioxide. This Court
rejected the Revenue's stand holding that the mixture of gases (referred to as
'kiln gas') was not carbon dioxide. Carbon dioxide was only a component of it,
the content whereof ranged from 27 to 36.5%. According to the specifications
laid down by the Indian Standards Institution, the carbon dioxide known to the
market was a gas having a component of 99% carbon dioxide. The kiln gas cannot,
therefore, be subjected to duty as carbon dioxide. The Court observed that
compressed carbon dioxide as known to market is wholly different from the kiln
gas generated by the respondents. It does not mean, the Court clarified, that
if the content of carbon dioxide is less than 99%, it would not be carbon
dioxide, for there can be substandard products as well. But what is produced
and marketed must be carbon dioxide. The kiln gas generated by the respondents,
the Court observed, can never be understood as carbon dioxide, nor is it ever
liquefied or solidified. It cannot, therefore, be called "carbon dioxide
as understood in the market among those who deal in compressed carbon
dioxide". The Court clarified further:
"At
the same time the duty being on manufacture and not on sale the mere fact that
kiln gas generated by these concerns is not actually sold would not make any
difference if what they generate and use in their manufacturing processes is
carbon dioxide." It may be noticed that at the relevant time Tariff Item
68 was not in force, which item was added only in the year 1975. The Revenue
sought to tax it under Tariff Item 14-H which spoke of " compressed, liquefied
or solidified gases including carbon acid (carbon dioxide)".
The
Court found that kiln gas was not 'carbon dioxide' nor was it ever compressed,
liquefied or solidified by the respondents.
7.The
next decision relied upon is in Union Carbide India Ltd. v. Union of India 4 .
The appellant-company was engaged in the manufacture and sale of flashlights
(torches). For that purpose, it used to purchase aluminium slugs and produced aluminium
cans or torch bodies at its factory by a process of extrusion. The
Superintendent of Central Excise called upon the appellant-company to submit a
price-list in respect of the aluminium cans for the purposes of levying excise
duty thereon. While complying with the said demand, the appellant protested
that the said aluminium cans cannot be described as 'goods' for the purpose of
levying excise duty inasmuch as they are not marketable and that they are
prepared only for the purpose of flashlights manufactured by the appellant. It
was also submitted that preparation of aluminium cans out of aluminium slugs
did not amount to manufacture and that aluminium cans are merely intermediate
products in the manufacture of flashlights. The aluminium cans prepared by the
appellant, it submitted, were manufactured by it entirely for its own purposes,
viz., for the manufacture of flashlights. The aluminium cans at the point at
which the excise duty was sought to be levied were in a crude and elementary
form incapable of being employed in that State as components in flashlights.
The 433 cans had sharp uneven edges and before they could be used as a
component in making the flashlight, these cans had to undergo various processes
such as trimming, threading and redrawing. After trimming, threading and
redrawing, they were reeded, beaded and anodised or painted. It is at that
point that they became distinct and complete components capable of being used
as flashlight cans for housing battery cells and for having a bulb fitted
thereto. On the said facts, it was held by this Court that the aluminium cans
in their aforesaid elementary and unfinished form were not capable of sale to a
consumer and hence not marketable nor were they ever marketed. This Court
accepted the affidavit filed by the appellant that the aluminium cans in that
State are not known to the market because the Revenue could not produce any
material to the contrary. The ratio of this decision is that the aluminium cans
which were sought to be taxed were, in that State not marketable. They were not
capable of being sold to a consumer nor were they ever sold in that State.
8.The
next decision relied upon is in Bhor Industries Ltd. v. CCE5. The question in
this case was whether the crude PVC films manufactured by the appellant therein
were 'goods' within the meaning of Section 3. The crude PVC films represented
an intermediate product used for captive consumption in manufacture of leather
cloth, laminated jute mattings and PVC tapes. It was found by the appellate
collector on the material produced by the appellants that crude PVC films were
not marketable products. The Revenue could not produce any material
establishing the contrary.
On
that basis it was held by this Court that the crude PVC films are not
marketable and not being 'goods' known to market, they cannot be treated as
'goods' for the purposes of Section 3. It was observed that marketability is an
essential ingredient in order to be dutiable under the Schedule to the Act.
9.Lastly,
Shri Shanti Bhushan relied upon CCE v. Ambalal Sarabhai Enterprises6. During a
visit to the factory premises of the respondent, the Central Excise officers
found that the respondent also manufactured and captively consumed starch hydrolysate,
which according to them was glucose and fell under Item 1-E of the Central
Excise Tariff. The respondent's case, however, was that the said starch hydrolysate
was not 'goods' since it was not marketable as such. It was found by the
Tribunal that the said product manufactured by the respondent was not and never
was a marketable commodity and therefore, does not constitute goods subject to
duty. The respondent produced evidence to show that starch hydrolysate was
highly unstable, that it fragmented quickly losing its character in a couple of
days. For this reason it could neither be stored nor marketed. There was no evidence
to the contrary adduced by the Revenue. This Court observed that while even
transient items of articles can also be goods, one has to take a practical
approach and decide on the basis of material before the court whether the
particular goods were marketable. After referring to the 5 (1989) 1 SCC 602:
1989 SCC (Tax) 98: (1989) 1 SCR 382 6 (1989) 4 SCC 11 2: 1989 SCC (Tax) 584 :
(1989) 3 SCR 784 434 characteristics of the said product (starch hydrolysate),
the Court came to the "conclusion that it would be unlikely to be
marketable as it was highly unstable". The test, therefore, is the
'marketability'; this test has to be applied and the matter decided in a
pragmatic and practical sense.
10.It
would be evident from the facts and ratio of the above decisions that the goods
in each case were found to be not marketable. Whether it is refined oil (non-deodorised)
concerned in Delhi Cloth and General Mills2 or kiln gas in South Bihar Sugar
Mills3 or aluminium cans with rough uneven surface in Union Carbide4 or PVC
films in Bhor Industries5 or hydrolysate in Ambalal Sarabhai6 the finding in
each case on the basis of the material before the Court was that the articles
in question were not marketable and were not known to the market as such. The
'marketability' is thus essentially a question of fact to be decided on the
facts of each case. There can be no generalisation. The fact that the goods are
not in fact marketed is of no relevance. So long as the goods are marketable,
they are goods for the purposes of Section 3. It is also not necessary that the
goods in question should be generally available in the market. Even if the
goods are available from only one source or from a specified market, it makes
no difference so long as they are available for purchasers. Now, in the appeals
before us, the fact that in Kerala these poles are manufactured by independent
contractors who sell them to Kerala State Electricity Board itself shows that
such poles do have a market. Even if there is only one purchaser of these articles,
it must still be said that there is a market for these articles. The
marketability of articles does not depend upon the number of purchasers nor is
the market confined to the territorial limits of this country. The appellant's
own case before the excise authorities and the CEGAT was that these poles are
manufactured by independent contractors from whom it purchased them. This plea
itself though not pressed before us is adequate to demolish the case of the
appellant. In our opinion, therefore, the conclusion arrived at by the Tribunal
is unobjectionable.
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