To Levy Or Not To Levy

By a judgement delivered on May 6, 1997 in UOI vs Delhi Cloth Mills Ltd Jt 1997 (5) SC 474, the Supreme Court has once again reiterated the principle that no excise duty can be levied on a commodity which has no market independently. The respondent before the court was Delhi Cloth and General Mills Co, which manufactured and sold carbide until the year 1967. Thereafter, it utilised the calcium carbide that it manufactured in the process of producing acetylene gas in its acetylene gas plant. The calcium carbide that was manufactured was tapped from the furnace in liquid form, placed in trays, allowed to cool and solidify and thereafter broken into cakes of the required size.

 

Called upon to pay excise duty on this calcium carbide, the respondent contended that it was not excisable being an intermediate product used for the generation of acetylene gas in the factory of manufacture. This plea was rejected both by the assessing officer and the appellate collector. The appellate collector conducted an enquiry on the process of manufacture of the calcium carbide in the respondents factory and concluded that the respondents contention that the carbide was an intermediate product and was not meant for sale was true. Enquiry also revealed that the calcium carbide were used for the production of acetylene gas. He also noted that the calcium carbide that was being sold in the market was packed in airtight containers and conformed to the ISI specification.

However, he declined to accept the respondents contention that the calcium carbide produced in the factory although not earmarked for marketing, was not an excisable. In his view, calcium carbide as occurring in Tariff Item 14AA(1), had not been qualified by any description, and hence was excisable.

Thereafter, the respondent filed a writ petition before the Delhi high court, which decided that it was not excisable. But the collector took the matter to the Supreme Court.

The respondent placed three-bench decision in the case Moti Laminates Pvt Ltd vs Collector of Central Excise Ahmedabad Jt 1995 (2) SC 324, before the apex court to support his contention that goods which were not marketable or acceptable in the market as commercial commodities could not be subjected to excise duty.

In the Moti Laminates case, the court was required to consider whether resin or resol is liable for levy of excise duty. Resol is specifically mentioned as one of the items in entry 15A of tariff schedule. Its life is short.

The appellants used it for manufacturing laminated sheets at the intermediate stage, without any processing or adding stabiliser or retarder. Based on these facts, the court held that as the duty of excise is levied on production and manufacture (which implies bringing out a new commodity), it is implicit that such goods must be usable, movable, saleable and marketable.

The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance to the commercial community for the purpose of buying and selling.

Since the solution that was produced could not be used as is without processing it further, it could not be considered as goods on which excise duty could be levied.

Although the duty of excise is on manufacture or production of goods, the entire concept of bringing out a new commodity is linked with marketability. An article does not become goods in the common parlance unless something new and different is brought about in the process production, and it can be bought and sold.

In Union of India & Anr vs Delhi Cloth and General Mills Co Ltd, AIR 1963 SC 791, a Constitution Bench of the SC while construing the word goods held as under:

These definitions make it clear that to become goods an article must be something which can ordinarily come to the market to be bought and sold.

Therefore, to attract excise duty, the goods must satisfy the test of marketability. The tariff schedule by placing the goods in unspecified and general categ-ory does not alter their basic character for leviability of duty. Duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and should be capable of being bought and sold.

In DCMs case, the issue raised was whether Moti Laminates judgement requires to be reconsidered. The court noticed that this decision is based on a number of earlier decisions of the SC, the latest being in the case of Dherangandhra Chemical works Ltd vs UOI 1997 (91). Hence, the court did not find any ground to reconsider the Moti Laminates decision.

The courts view is that it is not correct to contend that merely because an intermediate product manufactured by a unit was resold, and it was one of the items mentioned under item 15A, it was exigible to duty. Duty is attracted not by captive consumption of any article; rather it must fall within the purview of the Act, and apart from having a distinctive name, must be marketable or capable of being marketed.

It is unfortunate that on issues where the legal position is amply clear the cases are still dragged to the courts. The need is to review all pending cases on this matter and withdraw the cases covered by the judgement from the courts.

Duty is attracted not by captive consumption of any article; rather it must fall within the purview of the Act, and apart from having a distinctive name, must be marketable or capable of being marketed.