The general principle enunciated is that an article does not become excisable merely because of its specific inclusion in the Schedule to the Central Excise Tariff Act unless it is salable and known to the market. The whole problem is that this sort of issue on different articles keeps on coming to the Supreme Court again and again. This time it is the Methane gas.

In the process of manufacture of de-natured Ethyl Alcohol a residue known as spent wash comes into existence, which is reacted in a closed type digester and Methane gas is produced, which in turn is used as fuel in distillery.

The manufacturer claimed that the Methane gas is not marketable and therefore not excisable Revenue could not prove either that Methane gas was saleable or known to the market. So the Supreme Court ruled in this case that this article does not become excisable merely because of its entry in the Tariff in 27112900.

This latest judgement is a reiteration of its previous judgements in several cases. The most well known judgement on this issue is that in Bhor Industries vs. Collector – MANU/SC/0073/1989: 1989 (1) SCC 602, and T. N. State Transport Corporation Vs CCE - MANU/SC/0414/2004.

Let us examine how the new definition of manufacture by amending Section 2(d) of Excise Act will make a difference to methane gas. The amendment will insert an explanation in clause (d) to provide that "goods" include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable. This new definition only admits of the concept of (a) saleability but not of (b) presence in the market.

Then the question will become more complicated. Mere capability of being bought and sold for a chemical product is highly hypothetical. If Methane gas is passed through a pipe and transported to another factory which is not too far away, it would be quite possible theoretically to sell Methane gas to another factory but it may not be economically viable.

It will be true for very many chemicals that they can be transported in some special vehicles to some other factory. If that type of saleability alone makes it marketable, then there will be a whole host of chemicals which will become excisable.

So many new cases will arise in the Courts to determine if the concept of ‘presence in the market' can be completely ruled out just because the deemed definition has been introduced.

If the Supreme Court can say that in spite of a specific Tariff Entry, liability to excise duty does not arise unless the goods have presence in the market, it is not unlikely that it will say once again that inspite of the deemed definition of marketability, the commercial presence in the market is still necessary.

There is already a general notification[2] that goods under captive consumption are exempt. Inscrutable are the ways of the Commissioner who completely ignored this provision of law and raised demand of duty and fought right up to the Supreme Court on a totally different issue which also he deservedly lost. The Board should ask him why the Commissioner ignored the exemption notification to begin with.

The conclusion is that the issue of definition of marketability still remains open. The practical solution lies in not raising any demand for duty for intermediate goods if they are consumed captively and issuing demand only when they are actually sold.

[1] CCE, Chandigarh vs. Gurdaspur Distillery – MANU/SC/7266/2008
[2] Notification No.67/95-CE dated 16.3.1995

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