Bata India
Ltd. Vs. Commnr. of Central Excise, New Delhi [2010] INSC 266 (12 April 2010)
Judgment
IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2377 OF
2002 Bata India Ltd. .... Appellant(s) Versus Commissioner of Central Excise,
New Delhi ....Respondent(s)
K.S.
RADHAKRISHNAN, J.
1. The
question that arises for consideration in this appeal is whether unvulcanised
sandwiched fabric assembly produced in the Assessee's factory and captively
consumed can be termed as "goods" and can be classified as
"rubberized cotton fabrics" falling under sub-heading number 5905.10
of the schedule to the Central
Excise Tariff Act, 1985.
2. The
above question came up for consideration before the Customs, Excise and Gold
(Control) Appellate Tribunal (for short `the Tribunal). The Member (Judicial)
took the view that the product would not 2 attract duty unless it is
established that the goods in question is marketable or capable of being
marketed as a distinct product and that the Revenue has failed to discharge the
burden to prove the marketability and dutiability of the intermediate product
in the manufacture of rubber/canvas foot wear.
The
Member(Technical), however, disagreed with that finding and held that the
Revenue has discharged its burden and took the view that the goods in question
attracts duty.
3. In
view of the difference of opinions expressed by the two members, the matter was
placed before a third member who concurred with the view expressed by the
Member (Technical) and a final order was passed on the above issue by the
Tribunal on 24.12.2001 holding that double textured rubberized fabric /
unvulcanised sandwiched fabric is an excisable product liable to central excise
duty. No opinion was expressed by any of the members on the question of
exemption, applicability of notification and the quantum of penalty imposed and
those issues were left to be considered when the appeal is finally posted for
hearing.
4.
Aggrieved by the findings of the Tribunal dated 24.12.2001 the assessee has
come up before us with this appeal.
5. The
Assessee is a well known manufacturer of foot wear. For the manufacture of foot
wear, various raw materials are purchased by the assessee from the market and /
or from their respective manufacturers such as fabrics, rubbers, chemicals, solvents
etc. During the process of manufacturing of foot wear various chemicals /
rubbers / solvents etc., are mixed together and a thin layer of such mixed
materials is sandwiched in between two sheets of textile fabric, in running
length, through a three bowl calendering machine. The product is later cut and
stitched according to the assessee's requirements and in-process materials are
used as shoe- uppers in the foot wear. Such fabrics are also at times sent to
job workers for stitching purposes only and the fabric sandwiched with the
mixed materials are inputs of the intermediate stage during the course of
manufacture of footwear. Vulcanisation of the foot wear takes place only after
completing the entire process and then it would be a finished product as a
footwear, made available in the market and acquires commercial identity and
turns out to be a commercially known product.
6. The
Collector of Central Excise (in short the Collector) noticed that during the
manufacture of foot wear the assessee manufactures an excisable product called
double textured fabric which is further used as upper material in the
manufacture of foot wear and this double textured 4 fabric is nothing but
rubberized, water proof fabric with a thin layer of rubber sandwiched between two
sheets of cotton fabric in running length.
As a
result of that process a double textured fabric emerges as a distinct product
with specific properties and character other than that of original fabric used
as input which is known in commercial trade parlance as double textured fabric
which is used in considerable quantities for making rain- coats, holdalls, hand
bags etc.
7. The
Collector therefore, came to the conclusion that this double textured fabrics
are marketable products fulfilling the requirement of the definition of
excisable goods as per Section2(d) of the Central Excise 1944 (in short the
Act) attracting the levy of central excise duty under the Act.
The
Collector then issued a show cause notice dated 29.03.1995 to the assessee
stating it had manufactured and cleared double textured fabric valued at
Rs.7,96,43,247/- for captive consumption in the manufacture of shoe-uppers used
in 2,51,29,646 numbers of exempted canvas shoes without payment of duty
amounting to Rs.88,80,782/- during the period from 01.04.1990 to 31.08.1994
without the cover of excise gate pass, without filing classification list,
price list without accounting for production and clearance in the statutory
central excise records and without observing other formalities prescribed under
the Central Excise Rules, 1944. The 5 assessee was directed to show cause why
the above amount be not recovered from them under Rule 9(2) of the Central
Excise Rules, 1944 read with Section 11(A) of the Act and also to show cause
why penal action be not taken against them under Rule 173 Q(1) of the Central
Excise Rule, 1944. Yet another show cause notice dated 30.03.1995 also was
issued to the assessee claiming duty amounting to Rs. 5,95,181 during the
period from 01.09.1994 to 06.12.1994 stating that the assessee had failed to
pay duty for the rubberized fabric manufactured and cleared for captive
consumption for the above period as well and to show cause why penal action be
not initiated under Rule 173Q(1) of Rules 1944.
8. The
assessee filed detailed objections to the show cause notices on 22.09.1995 and
19.02.1996 respectively, and the matter was heard by the Commissioner, Central
Excise who confirmed the demands made in both the show cause notices and a
total amount of Rs.89,77,064 was demanded from the assessee. The Commissioner
of Central Excise also imposed a penalty of Rupees 1 crore on the assessee
under Section 173 Q(1) of the Central Excise Rules, 1944. Aggrieved by the
above mentioned order the assessee approached the Tribunal and the Tribunal by
a majority order held that double textured rubberized fabrics / vulcanized
stitched fabric is an excisable product attracting duty the correctness or 6
otherwise of that order is the issue that has come up for consideration before
us.
9. Shri
Ravindra Narain, learned counsel appearing for the assessee submitted that the
Tribunal has committed a grave error in holding that the product manufactured
by the assessee for their captive consumption is liable to duty under the Act.
He submitted that the Tribunal has not properly appreciated the manufacturing
process undertaken by the assessee and the question whether that intermediate
product has commercial identity or marketability. Learned counsel also
submitted that the Revenue has not discharged their burden of proof to
establish that the product is excisable and marketable and capable of being
marketed and that the Revenue has only produced three documents viz., the test
report dated 20.10.1994, the SSB hand book of rubber products and the statement
of Superintendent (Supply and Transportation) of the assessee's company which
are insufficient to hold that product is marketable or capable of being
marketed. On the other hand assessee has produced sufficient materials to
establish that the material used by the assessee is not marketable and has no
commercial identity.
10. Shri
Narain also submitted that marketability is an essential ingredient to hold
whether a product is dutiable or excisable and it is for the 7 Revenue to prove
the same. Learned counsel also submitted that it is not the function of the
Tribunal to enter into that arena and make suppositions, rather it should
examine the question whether sufficient materials have been produced by the
Revenue to discharge its burden. In support of his contention learned counsel
placed reliance on various decisions of this court such as Hindustan Ferodo
Ltd. vs. Collector of Central Excise, Bombay (1997) 2 SCC 677; Union of India
vs. Sonic Electrochem (P) Ltd.
(2002) 7
SCC 435; Cipla Ltd. vs. Commissioner of C.Ex., Bangalore 2008 (225) ELT 403
(SC).; Gujarat Nermada Valley Fert. Co. Ltd. vs. Collector of Ex.&
Cus.(2005) 7 SCC 94.
11. Mr.
V. Sekhar, learned senior counsel appearing for the Revenue, on the other hand,
contended that the materials produced by the Revenue would be sufficient to
hold that the product in question is a distinct product having commercial
identity and is capable of being marketed.
Learned
counsel submitted that by the process undertaken by the assessee a new product
emerges which is capable of being brought to market or being sold. Learned
senior counsel also submitted that the material is also being sent out of the
factory to the job workers for stitching purposes and is brought back from
them, and, hence the said product is a commercially distinct product liable to
be classified under the sub-heading 8 5905.10 of schedule to Central Excise Tariff
Act. Reference was also made to the judgment of this
court in UOI vs. Delhi Cloth & General Mills Co. 1997 (1) ELT J-199.
Referring to the division bench judgment of the Calcutta High Court reported in
(1993) 68 ELT 756 (Calcutta), learned counsel submitted that the Calcutta High
Court on identical products, dealt with by the assessee, decided against the
assessee.
12. We
have heard counsel on either side at length and have also gone through the show
cause notices issued by the Collector, objections filed by the assessee and the
order passed by the Commissioner, views expressed by both the members and the
order passed by the Tribunal on the question of exigibility of the product. The
process undertaken by the assessee has been elaborately dealt with in the above
mentioned orders and it is unnecessary to reiterate the same. Suffice it to say
that the product in question is used as an intermediate product, goes to make
the component for the final product. The burden to show that the product in
question is marketed or capable of being bought or sold in the market so as to
attract duty is entirely on the Revenue. Reference may be made to the decision
of this Court in Union of India vs. Delhi Cloth and General Mills Co. (1997) 5
SCC 767. The test of marketability often called `Vendability test' has been
elaborately considered by a constitution Bench 9 Judgment of this Court in
Union of India vs. Delhi Cloth and General Mills Company Limited AIR 1963 SC
791. This legal position has been reiterated by this Court in A.P. State
Electricity Board vs. Collector of Central Excise, Hyderabad (1994) 2 SCC 428
and various other decisions, wherein this Court held that the marketability is
essentially a question of fact to be decided on the facts of each case and
there can be no generalization, and the fact that goods are not in fact
marketed is of no relevance and the question whether they are capable of being
marketed. Admittedly, the assessee is not marketing the product but still the
question is whether the product is capable of being marketed.
13. The
Revenue in this case has not produced any material before the Tribunal to show
that the product is either been marketed or capable of being marketed but
expressed its opinion unsupported by any relevant materials. This Court in
Hindustan Ferrado Limited (supra) explained the function of the Tribunal in
such situations as follows:- "It is not the function of the Tribunal to
enter into the arena and make suppositions that are tantamount to the evidence
that a party before it has failed to lead. Other than supposition, there is no
material on record that suggests that a small scale or medium scale
manufacturer of brake linings and clutch facings "would be interested in
buying" the said rings or that they are marketable at all.
As to the
brittleness of the said rings, it was for the Revenue to demonstrate that the
appellants' averment in this behalf was incorrect and not for the Tribunal to
assess their brittleness for itself.
10
Articles in question in an appeal are shown to the Tribunal to enable the
Tribunal to comprehend what it is that it is dealing with. It is not an
invitation to the Tribunal to give its opinion thereon, brushing aside the
evidence before it. The technical knowledge of members of the Tribunal makes
for better appreciation of the record, but not its substitution."
14. In
the above case this Tribunal was concerned with articles such as rings punched
from asbestos boards and two types of asbestos fabrics, namely, special fabrics
in coil of continuous length and M.R. grey in rolls. This Court noticed that
the Revenue had not produced any evidence to establish that the said rings fell
within Item 22F of Schedule to the Act and held in favour of the assessee.
15. In
Sonic Electrochem Limited (supra) this Court was dealing with the question
whether plastic body, a part of electronic mosquito repellant and fragrant mat
are chargeable to excise duty under Articles 5(f) of Notification 160/68-CE
dated March 1, 1986 and sub-heading 3307.49 respectively of the Central Excise
and Tariff Act, 1985. In that case, this Court held that in order to establish
that goods are liable to duty, two test have to be satisfied viz., (a)
manufacture and (b) marketability. On the question of marketability of the
articles this Court held as follows :- ".....Marketability of goods has
certain attributes. The essence of marketability is neither in the form nor in
the shape or condition in which the manufactured articles are to be found, it
is the commercial 11 identity of the articles known to the market for being got
and sold.
The fact
that product in question is generally not been got and sold or has no demand in
the market would be irrelevant. The plastic body of EMR does not satisfy the
aforementioned criteria. There are some competing manufacturers of EMR. Each is
having a different plastic body to suit its design and requirement. If one goes
to the market to purchase plastic body of EMR of the respondents either for
replacement or otherwise one cannot get it in the market because at present it
is not a commercially known product. For these reasons, the plastic body, which
is a part of the EMR of the respondents, is not `goods' so as to be liable to
duty as parts of EMR under para 5(d) of the said exemption notification."
16. In
Gujarat Narmada Valley Fertilisers Corporation (supra), this Court was dealing
with the question whether the intermediate chemicals which are formed in the
process of manufacture Butachlor are liable to tax under the Salt Act and held
that the test report produced by the Revenue will not establish the
marketability of the product. It further held that unless the product is
capable of being marketed and is known to those who are in the market as having
an identity as distinctly identifiable that the article is subject to excise
duty, the product cannot be treated as a product that is marketable.
Marketability cannot be established by mere stability of the product. Something
more would have to be shown to establish that the products are known in the
market as commercial product.
17. In
Cipla Limited (supra) this Court was examining the question whether Benzyl
Methyl Salycylate (BMS) is marketable and therefore liable 12 to excise duty.
After referring to various earlier decisions of this Court , it was held that
marketability is an essential ingredient to hold that an article is dutiable or
excisable to duty and it is well established principle of law that the burden
is on the Revenue to prove that the goods are marketable or excisable and held
that the product in question was neither marketed nor marketable and was only
an intermediate product. It is useful to refer to the law laid down by this
Court which reads as follows:- " Since marketability is an essential
ingredient to hold that a product is dutiable or exigible, it was for the
Revenue to prove that the product was marketable or was capable of being
marketed.
Manufacturing
activity, by itself, does not prove the marketability.
The
product produced must be a distinct commodity known in the common parlance to
the commercial community for the purpose of buying and selling. Since there is
no evidence of either buying or selling in the present case, it cannot be held
that the product in question was marketable or was capable of being marketed.
Mere transfer of BMS by the appellant from its factory at Bangalore to its own
unit at Patalganga for manufacture of final product was either marketed or was
marketable."
18.
Revenue in this case has not succeeded in establishing that the product in
question was either marketed or was capable of being marketed.
The test
of marketability is that the product which is made liable to duty must be
marketable in the condition in which it emerges. No evidence has been produced
by the Revenue to show the product unvulcanised sandwiched fabric as such is
capable of being marketed, without further 13 processing. The question is not
whether there is an hypothetical possibility of a purchase and sale of the
commodity but whether there is sufficient proof that the product is
commercially known. The mere fact that the product in question was entrusted
outside for some job work such as stitching is not an indication to show that
the product is commercially distinct or marketable product. Without proof of
marketability the intermediate product would not be goods much less excisable
goods. Such a product is excisable only if it is a complete product having
commercial identity capable of being sold to a consumer which has to be
established by the Revenue.
19. The
test report dated 25.10.1994 of the Chemical Examiner, SPB hand book of rubber
products and the statement of the Superintendent (Supply and Transportation) of
the assessee's company do not show that the product in question is capable of
being marketed. The mere theoretical possibility of the product being sold is
not sufficient but there should be commercial capability of being sold. Theory
and practice will not go together when we examine the marketability of a
product. On the other hand materials produced by the assessee i.e. affidavit of
Mr. Shomnath Chokravarty, Consultant - Rubber and Plastic Technology, affidavit
of the Production Manager of the assessee Company, certificate of 14 Prof.
C.K.Das, IIT, Kharagpur, affidavit of Ms. Parvati Pada Mukherjee, certificate
from Footwear Design and Development Institute, Ministry of Commerce, Government
of India and The Vanderbilt Rubber Handbook, would show that the product in
question is only an intermediary product generally used for captive consumption
which has no commercial identity as such.
20. We
are also of the view that no reliance can be placed on the Division Bench
Judgment of the Calcutta High Court reported in Union of India (UOI) vs. Bata
India Ltd. 1993 (68) ELT,756 (Cal) since this Court while dismissing
SLP(C)No.6146 of 1993 filed by the assessee against the above judgment clearly
opined that the merits of the case was not being looked into since the
operative portion of the judgment was in favour of the assessee herein and
hence the question as to whether the product was excisable or not was not
decided.
21. In
view of the above facts and circumstances, we are inclined to allow this appeal
and set aside the order of the Tribunal and quash the show cause notices issued
to the assessee since the Revenue had not produced any relevant materials to
show the marketability of the product.
We are
informed that vide Notification No.143/94-CE dated 7.12.94 the product in
question stands exempted if captively used for the manufacture 15 of exempted
footwear. Civil appeal is, therefore, allowed as above, directing the Tribunal
to dispose of the appeal without delay.
.........................................J. (DALVEER BHANDARI)
.........................................J. (K.S. RADHAKRISHNAN)
New Delhi;
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