Is marketability only a question of fact?

The concept of marketability, the key element of manufacture and therefore of excisability has attracted many Supreme Court judgments and even many more High Court and Tribunal judgments. The latest judgement of the Supreme Court on the subject has added further ramification to the issue by saying marketability is a question of fact and has to be determined on the facts of each case and cannot be strait-jacketed in to pigeon holes. The issue is whether certain general principles are to be followed or it is only to be decided on the facts of the case.

In the present judgment of the Supreme Court in the case of Nicholas Piramal India Ltd. vs. Commissioner of Central Ex., Mumbai – 2010(260)ELT338(SC), the goods were Vitamin A Acetate Crude and Vitamin A Palmitate. The manufacturer claimed that they were basically Crude Vitamins and had only two or three days of shelf life. They argued, therefore, that the goods have no shelf life and were not marketable. They also said that they have not sold the products but used them to add to the final product, that is vitamin A in finished form, which was sold by them as an animal feed supplement. The Supreme Court agreed with the view of the Revenue and the Tribunal that crude vitamin which was an intermediate product for adding to the final product of vitamin A so far as this company was concerned was nevertheless a marketable product and was therefore excisable. The Supreme Court said that the issue had to be decided on the basis of the facts in each case.

 

The issues involved in this case are relating to (i) intermediate product, (ii) shelf life, and (iii) actual sale. One the first issue of intermediate product, the argument which is put forward by the manufacturers usually is that the goods are actually used by them and therefore only the final product which is excisable, should pay duty. The Supreme Court has settled the issue in this case by saying that even if they have not sold it, they are dutiable so long as they are manufactured. (ii) On the issue of shelf-life, the Supreme Court has said that even two-three days of shelf-life is enough to be called a shelf-life because during this time it can be sold. In another instance in the case of State Transport Corpn. Ltd. v. Collector of Central Excise, Mumbai-2004(166)ELT433(SC), the Supreme Court had held that even a difference of 8 to 10 hours was enough to make the product marketable depending on the nature of the goods. (iii) Regarding actual sale, the Supreme court held that it was not necessary that the products would be actually sold in order to call it marketable. If it is capable of being sold, then it can be called marketable. If this product was not being manufactured by them, they would have to buy it from the market. So obviously it is marketable. The Court has, therefore, held that the goods are marketable and therefore excisable in view of the facts of the case.

What the Supreme Court has meant by saying that marketability is a question of fact is that while the principles relating to shelf-life, intermediate goods and actual sale are settled, more or less, in each case the facts will determine whether the goods answer to the requirement of the principles. If any one of the principles is not satisfied by the facts of the case, the goods would not be taken as marketable and therefore not excisable.

What is interesting in this case is that even if the products had to pay excise duty, the manufacturer would get the Cenvat credit. Thus, there would be no difference from the point of view of liability to the manufacturer or revenue implication to Revenue. While the theoretical issue needs to be settled by the Supreme court on principle, it was necessary for the Revenue to have pointed out to the Supreme court that it was a revenue neutral decision.

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