SABYASACHI MUKHARJI - (1.) THIS is an appeal under Section 35L of the Central Excises and Salt Act, 1944 (hereinafter referred to as 'the Act') from the order passed and judgment delivered on 25/04/1984/ 4/05/1984 by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (hereinafter referred to as 'the Tribunal'). The question involved is whether the crude PVC film is dutiable. The appellant is, inter alia, a manufacturer of crude PVC films for the purpose of use in final products such as leather cloth and laminated jute mattings and PVC tapes both insulation and adhesive.. The said crude PVC films are manufactured by the appellant in a continuous process in the factory premises of the appellant which are licensed premises under the Act. The appellant filed classification list No. XIV/75 dated 20/11/1975 in respect of crude PVC films used for lamination with jute and for tapes claiming that the said PVC films were non-excisable on the ground that the same were non-marketable intermediate products used exclusively for captive consumption. The said classification was approved by the Assistant Collector, Central Excise on 9/12/1977.
(2.) THERE was an order passed by the Appellate Collector on 14/06/1974 holding that crude PVC films were not marketable and were not liable to excise duty. It is necessary to refer to the Tariff Entry involved in this case. Tariff Item 15-A(2) of the Central Excise Tariff reads as follows : "Articles made of plastics, all sorts including tubes, rods, sheets, foils, sticks, other rectangular or profile shapes, whether laminated or not, and whether rigid or flexible, including levy flat tubings and polyvinyl chloride sheets, not otherwise specified." The same crude PVC films which have been manufactured by the appellant and used in the manufacture of some other end product were subject-matter of adjudication by the concerned authorities in the period 1-3-1970 to 29-5-1971. The Appellate Collector of Central Excise in an order dated 14/01/1974 held that the said PVC films manufactued by the appellant are not marketable intermediate products and hence not liable to duty. The Appellate Collector, Central Excise in his order noted the contentions of the appellant that the appellant had produced sufficient evidence to prove that the crude PVC sheets which were the subject-matter of the Show Cause Notice in that case and which are also the subject-matter of the present show cause notice were not known as in the market as PVC sheets nor were these marketable PVC sheets. After reference to the rival contentions, the said Appellate Collector in his order held, inter alia, as follows : "PVC films/sheets for the clearance of which demand letters are issued are not marketable as the same are neither embossed nor printed nor any finishing work is done when compared to PVC films/sheets which are marketed by them. It was further stated that the tensile strength of PVC sheet which is marketed by the appellants is as per the international standards laid down by A.S.T.N./I.S.I. and is much higher than the crude PVC sheets manufactured by them as an intermediate product for further manufacture of leather cloth. As such, it was contended that the product manufactured by the appellants is not liable to central excise duty. Shri Patel further stated that it was not necessary to prove from technical angle that the crude PVC sheets manufactured by the appellants for manufacturing leather cloth are different from PVC sheets which are manufactured by them and sold in the market as such Crude PVC sheets used in the appellants' factory for further manufacture of leather cloth can be distinguished from PVC sheets which are marketed by them as such by naked eye. Moreover, all the processes which are required in case of PVC sheets which are marketed by the appellants so as to make these sheets marketable are not carried out in the case of crude PVC sheets which are used by the appellants in their factory for the manufacture of leather cloth ... ." The Appellate Collector further held in the said order that from the technical point of view, crude PVC sheets are different from marketable PVC sheets inasmuch as the tensile strength of crude PVC sheets is much lower than that of marketable PVC sheets. He further held that "This is so because marketable PVC sheets are passed through the calender at very high temperature and at a slow speed so that gelation/curing fusion takes place while in the case of crude PVC sheets, the same are passed through the calender at very fast speed and lower temperature with the result that gelation. fusion in the course of heating and ageing is not formed resulting in lower tensile strength. When these crude PVC sheets are coated with textile fabrics, the two layers are passed through the rollers at slow speed and at high temperature and it is only at this stage that the GEL is properly formed and resin particles become swollen by diffusion of plasticizer into them that they touch each other. As heating progresses, the swollen particles begin to weld together, resulting in the required degree of the strength." Thereafter, the Classification List was filed in respect of crude PVC films manufactured for use in adhesive tapes on 9/12/1975 and the said list was approved by the Assistant Collector of Central Excise after making an inquiry in that behalf. On 15/02/1977, however, a Show Cause Notice was issued by the Assistant Collector, calling upon the appellant to show cause as to why crude PVC films should not be classified under tariff Item 15A(2) and appropriate duty not recovered under Rule 10 of the Central Excise Rules, as these then stood, read with Rule 173-J of the Central Excise Rules. There was a corrigendum issued on 23/02/1977 to the said Show Cause Notice dated 15/02/1977 substituting the words 'Rule 10' by the words 'Rule 10A'. A reply was given by the appellant to the said Show Cause Notice. In the said rely, the appellant stated as follows : "We have repeatedly pointed out that the issue of "Crude Film" has been decided by the Appellate Collector and also by the Assistant Collector while approving classification. However, the Superintendent persisted in pressing us for giving information about production figures of 'Crude Film' possibly with a view to raise demand. We had requested the Superintendent to let us know the provision under which he required us to give the information in regard to a product which was non-excisable. He was not able to clarify this and tried to invoke wrong sections and rules according to us. The present action of re-classification, in order to make the product excisable somehow or other, seems to us to be a continuation of the matter which the Superintendent was not able to enforce on us. There is no change in the market terminology of "PVC Film". Our product is not known in the market as "PVC Film". Even technically also a further process is required to be carried out on our product before it is "PVC Film" as is known to the market. The various decisions of Supreme Court on this point are well-known to the Department. It is also known that the Appellate Collector's decision is binding on you. The principles of natural justice cannot be served by serving a show cause notice on us in order to change the Appellate Collector's decision in some manner or other. We have an uneasy feeling that an attempt is being made to somehow bring the product under excise duty." There was an order passed on 16/02/1978 by the Assistant Collector confirming the Show Cause Notice. On 10/10/1979 an appeal was preferred by the appellant against the order of the Assistant Collector dated 16/02/1978 which was rejected by the Appellate Collector of Central Excise. On 6/02/1980 a revision application was preferred by the appellant to the Joint Secretary, Government of India. That was transferred to the Tribunal and by the impugned order, the Tribunal has rejected the appeal under challenge. The Tribunal in the order has set out the contentions and observed that the question for determination was whether crude PVC film fell for classification under Item 15A(2) of the Central Excise Tariff or not. A submission was made that the Appellate Collector had held that the crude PVC sheets were not marketable and had not acquired the character and status of PVC films as known to the market. It was contended on behalf of the appellant that only marketable PVC film would fall within the said item. On the other hand, the Department's contention was that there was nothing to show that the film/sheet was crude and the test of marketability was not relevant. According to the Tribunal, the crude PVC films/sheets would fall under the Tariff Item. The Tribunal was of the view that the tariff entry did not spell out whether it covered only finished film/sheet or whether it covered also crude film/sheet. The Tribunal came to the conclusion that the tariff item covered all types of films/sheets. The Tribunal also came to the conclusion that the concept of in marketability was not relevant and all sorts of crude films would be covered by the entry.
(3.) THE Tribunal was of the view that the Appellate Collector's observations were made entirely in different context. In that view of the matter, the Appellate Collector's order was confirmed subject to the modification that duty in respect of clearances prior to the issue of the Show Cause Notice was restricted to the period permissible in terms of Rule 10 read with Rule 173-J, that is to say, for 12 months. In other words, the Tribunal's view was that if the description of the goods in question fell into the entry, it was dutiable in the intermediate list and as such the goods had become goods as known to the market and the question of marketability or being capable of being sold in the market was not relevant. In support of this appeal, on behalf of the appellant, it was contended by Shri Harish Salve that it was only the 'goods as specified in the Schedule' to the Central Excise that could be subject to the duty. It appears to us that under the Central Excise Act, as it stood at the relevant time, in order to be goods as specified in the entry the first condition was that as a result of manufacture goods must come into existence. For articles to be goods these must be known in the market as such or these must be capable of being sold in the market as goods. Actual sale in the market is not necessary, user in the captive consumption is not determinative but the articles must be capable of being sold in the market or known in the market as goods. That was necessary. This has been clearly spelt out by this Court in Union of India v. Delhi Cloth and General Mills (1963) Supp. 1 SCR 586 : ( AIR 1963 SC 791). There this Court held that excise duty being leviable on the manufacture of goods and not on their sale, the manufacturer could not be taxed unless manufacturing process resulted in production 'of goods as known in the market'. (Emphasis supplied). In that case, the respondents, who were manufacturers of vegetable products known as Vanaspati, were assessed to excise duty under Item 23 of the First Schedule to the Central Excises and, Salt Act, 1944, on what the taxing authorities called the manufacture of 'refined oil' from raw oil which according to them fell within the description of "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." The common case made by the respondents in their petition under Article 226 of the Constitution challenging the imposition was that for the purpose of manufacturing Vanaspati they purchased groundnut and til oil from the market and subjected them to different processes before applying hydrogenation to produce Vanaspati and that nothing that they produced at any stage was covered by that item. Affidavits by experts were filed by both the parties and the High Court found in favour of the respondents and allowed the petitions. The Union of India appealed. It was urged on its behalf before this Court that before finally producing Vanaspati the respondents produced at an intermediate stage what was known as 'refined oil' in the market and although they might not sell it and although Vanaspati, when produced, was liable to excise duty under another item, that could not affect their liability. It was held that excise duty being leviable on the manufacture of goods and not on their sale, the petitioners in that case no doubt be liable if they produced 'refined oil', as known in the market, at an intermediate stage. But the Court found that it was clear that there could be no 'refined oil' as known in the market without deodorisation according to the specification of the Indian Standards Institute and the affidavits of the experts. Since however, the process of deodorisation was admittedly applied in the respondents' factories only after hydrogenation was complete, they could not be said to produce 'refined oil' at any stage. Nor could the respondents be held to manufacture some kind of 'non-essential vegetable oil'. K. C. Das Gupta, J., who spoke for the Court, at page 595 (of 4963 Suppl 1 SCR) : of the report, observed as follows : "On a consideration of all these materials we have no doubt about the correctness of the respondents' case that the raw oil purchased by the respondents for the purpose of manufacture of Vanaspati does not become at any stage "refined oil" as is known to the consumers and the commercial community." After considering the definition of the word 'manufacture' and several authorities and Words and Phrases, Permanent Edition, Vol. 18, from a judgment of the New York Court and also other relevant authorities, this Court held that the definitions made it clear that to become "goods" an article must be something which can ordinarily come to the market to be bought and sold. (Emphasis supplied). In that view of the matter this Court agreed with the High Court and dismissed the appeal. Therefore, the first principle that emerges is that excise was a duty on goods as specified in the Schedule. In order to be goods an article must be something which can ordinarily come to the market and is brought for sale and must be known to the market as such. Therefore, the marketability in the sense that the goods are known in the market or are capable of being sold and purchased in the market is essential. This principle was again reiterated by this Court in South Bihar Sugar Mills Ltd., v. Union of India, (1968) 3 SCR 21 : ( AIR 1968 SC 922) where this Court held that the gas generated by the appellant- companies in that case was kiln gas and not carbon dioxide as known to the market, i.e., those who deal in it or who use it. Therefore, the kiln gas in question is neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and could not attract duty under Item 14-H of the First Schedule. It was held by this Court that the duty being on the manufacture and not on the sale, the mere fact that kiln gas generated by those concerns was not actually sold did not make any difference if what they generated and used in their manufacturing process was carbon dioxide. Justice Shelat speaking for the Court at page 31 (of SCR) of the report observed : "The Act charges duty on manufacture of goods. The word "manufacture" implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods. As the Act does not define goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictinonary meaning is that to become good it must be some thing which can ordinarily come to the market to be bought and sold and is known to the market. (Emphasis supplied) That it would be such an article which would attract the Act was brought out in Union of India v. Delhi Cloth and General Mills Ltd., (1963) Supp 1 SCR 586 : ( AIR 1963 SC 791). In that view of the matters, the Court came to the conclusion that the gas generated by these concerns was kiln gas and not carbon dioxide as known to the trade, i.e., to those who deal in it or who use it. It must be capable of being sold in the market and known in the market as such. Then only it would be dutiable." ;