Sukumar Mukhopadhyay; Exigibility of intermediate goods

In one of the latest judgments on the exigibility of intermediate products in the case of Nicholas Piramal vs CCE,2010 (260) ELT 338 (SC) decided on 29-11-2010 the Supreme Court has held that Vitamin A Acetate Crude and Vitamin A Palmitate or Crude Vitamin which emerged at intermediate stage of manufacture of Vitamin A were products known commercially and were capable of being marketed. So they were excisable goods. The fact that the manufacturer chose not to sell such product but used them does not mean that the same is not capable of being marketed . The product involved in present case used in manufacture of animal feed supplement sold by them. The impugned goods would have to be bought from the market if they were not making them. While this is the principle laid down by the Supreme Court, Revenue is often calling goods at the intermediate stage excisable even if they are not marketable products.

While increasing revenue is the primary concern of the excise department keeping the steep target in view, the way is not to rope in as many new articles as possible. At least in the case of intermediate products one has to be more circumspect. Some recent judgements of the Supreme Court  have clearly settled the proposition once again that it is not so advisable on the part of Revenue to grab every opportunity to try to collect excise duty from articles which are intermediate products and have not reached that stage of finishing which makes them marketable.

In the judgement in the case of CCE v United Phosphorus Ltd reported in 2000(4) SCC 18, the Supreme Court has turned down the view of Revenue that the intermediate products such as mercuric acetate, PCA chloride and PCA which come into existence at a certain stage in the ultimate production of fungicide, weedicide and insecticide, are not marketable goods and so they are not goods for the purpose of levying excise duty.  Insecticide find specific mention under the excise tariff heading 3808.10. Even then the Court has said that they are not dutiable. It comes to saying that even if the articles are mentioned by generic name in the tariff, they are not chargeable to duty if they are not marketable. The substance of the decision is that if an item is mentioned in the Schedule of the tariff, it is dutiable and the intermediates are also dutiable to excise duty so long as the intermediate goods are marketable by themselves.

The point of view of Revenue is that once the Parliament enacts a law and mentions it in the tariff, (though by its generic name since the constituents are aplenty and cannot be individually mentioned), the item will still be goods for the purpose of excise duty even if they are not manufactured. That is to say, marketability becomes irrelevant. When Parliament has called something as manufacture, the question of marketability does not survive.

This view has been challenged in the Supreme Court time and again. In the landmark judgement in the case of Empire Industries v UOI reported in 1985(20) ELT 179SC, the Supreme Court held that even specific entries such as bleaching, dyeing, mercerising, incorporated by amending the definition of “manufacture”, would not attract duty but would become ultra-vires the Entry 84 of List 1 of the Seventh Schedule of the Constitution, if these processes were not defined as manufacture. This means even specific entries in the tariff have to conform to the concept of manufacture (which includes marketability). In several judgements this concept has been upheld. In the case of Bhor Industries v CCE, 1989(1) SCC602 the Supreme Court decided that taxable event in the case of excise is manufacture and manufacture is complete when it is known in the market as such. Actual sale is not required but it must be capable of being bought and sold. Intermediate products, even if captively consumed, are liable to duty if they satisfy the test of being goods on the touchstone of marketability. Marketability is the condition precedent to excise duty. Specifically the Court held that polyvinyl chloride film, though mentioned in the tariff entry 15A(2), did not fall in the category of goods when it is in the form of crude because it is not marketable.

In another occasion in the case of Hyderabad Industries v UOI 1995(78) ELT 641 SC the goods were asbestos fibre specifically mentioned in the item 22F of the excise tariff and Revenue wanted to charge duty on that but the Supreme Court held that they were not goods as they were not manufactured.

 In spite of all these judgements of the Supreme Court, the excise department has been continuously clinging to the opinion that once the goods are mentioned in the tariff either specifically by name or by generic name such as resin or pesticide, the duty is to be charged irrespective of whether the articles are marketable or not.

One legal reason for this stubbornness of thought of Revenue is the lurking suspicion in the mind of the officers (when they are not plainly revenue minded) is that they believe in the legal dictum that they being creatures of the statute cannot go against the statute. In justification of this notion they may possibly quote that in the case of Miles India v AC Customs 1987 (30) ELT 641 SC the Supreme Court has said that the creatures of the statute must act within the limits of the statute. The real situation is however that the statute does not mean only the written Act but also the Supreme Court judgements, which settle the law. So when the settled law by the Supreme Court judgements is that goods which are not marketable are not exigible to excise duty, even if they are mentioned in the tariff, it is not going against the statute if such goods are not charged to duty. So it will by well within the confines of the statute and the creatures of the statute have nothing to fear.

One aspect, which has not been given adequate attention, always is that even if the intermediate goods are chargeable to duty, they will get MODVAT credit and therefore the effect on duty is neutralised. So there is no point in fighting tooth and nail and going up to the Supreme Court. May be where they cleared finally from the factory, the case can be arguable in the courts. But they being intermediate goods they are not likely to be cleared finally from anywhere. So litigation will be considerably less if the Central Board of Excise and Customs issues a circular directing that in cases of intermediate goods the search for dutiable goods need not be undertaken as they are  liable to MODVAT credit or are exempted by notification.