2017 (10) TMI 660 - SC - Central Excise

Excisability - agarbathi perfume also called as odoriferous compound which is used in manufacture of agarbathis sold in the market - Whether the Board s Circular No.495/61/99-CX.3, dated 22.11.1999 exempts payment of excise duty on perfumery compound manufactured by the respondent? - Held that - The Board vide its circular clarified that such odoriferous compound mixed with dough is not excisable - The circular clarifies that odoriferous substances are not marketable because these products are not sold by manufacturers in order to protect their trade secret. The circular by way of illustration also stated that the whole process of manufacturing agarbathi, that is preparation of the odoriferous compounds and their mixing with the dough or agarbathi is normally carried out in a continuous manner since the whole process is continuous. These odoriferous substances do not remain with the manufacturer to be sold in the market - it is evident that the clarification is applicable to the product which comes into existence, at intermediate stage in the form of paste/dough in a continuous process of manufacture and not to the manufacture of odoriferous perfume, which is in liquid form and transported/stored in barrels/drums. The said circular cannot be made applicable to cases beyond its scope - it cannot be said that the agarbathi compound manufactured by the respondent is covered under the aforesaid circular. Whether actual marketing of the perfumery compound manufactured by the respondent is necessary for the levy of excise duty? - Held that - It is settled that to hold the product as excisable/dutiable, actual marketing/sale of goods is not necessary. What is required to be proved is that the capability of marketing the product. Marketability is decisive test for dutiability. Whether the goods are, in fact, marketed or not is of no relevance. It is also not necessary that goods in question should be generally available in the market. Even if the goods are available from only one source or from a specified market, makes no difference so long as they are available for purchasers. The assessee manufactures agarbathi perfumes (odoriferous compound) by mixing inputs, aromatic chemicals, perfume oil and acids according to the pre-determined formula. It is prepared by the respondents in their Bangalore factory and then transferred to their Mysore factory where finally it is applied on raw agarbathis. In this process of manufacturing the perfumery compounds are capable of being sold in the open market. The odoriferous compound has got a shelf life and capable of being stored/transported/sold and bought by agarbathi industries. The assessee had sold certain quantity of perfumery compound to M/s. Tibetan Handicrafts Centre Bylkuppe, Mysore District - it is an excisable product falling under Chapter Sub-Heading 3302.90. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether Circular No.495/61/99-CX.3 exempts excise duty on perfumery compound.
2. Whether actual marketing of perfumery compound is necessary for excise duty levy.

Analysis:
1. The respondent manufactured agarbathi perfumes and paid excise duty until March 2001. The Central Board of Excise and Customs issued Circular No.495/61/99-CX.3, stating that odoriferous substances not marketable are not excisable. The respondent transferred compounds to its Mysore unit and sold some to a handicraft center. The Revenue demanded duty, penalty, and interest, which the CESTAT later set aside, leading to the Revenue's appeal.

2. The Revenue argued that the respondent's perfumery compounds are marketable and not covered by the circular, as they are capable of being sold. They contended that CESTAT erred in requiring actual sale for excise duty levy. The respondent claimed non-excisability per the circular, as the compounds were not marketed. The respondent's counsel sought dismissal of the appeals.

3. The Supreme Court analyzed the circular, emphasizing that odoriferous compounds not marketable are not excisable. The circular clarified the non-marketability of such compounds due to trade secrets. The Court noted that the respondent's perfumery compounds were capable of being sold, as evidenced by sales to a handicraft center. Thus, the Court held the compounds excisable under Chapter Sub-Heading 3302.90, overturning CESTAT's decision.