1989 (10) TMI 58 - HC - Central Excise

Summary

Issues Involved:
1. Classification and excisability of Benzyl Methyl Salicylate (BMS).
2. Marketability as a criterion for excise duty.
3. Compliance with judicial directions and application of Supreme Court precedents.

Issue-Wise Detailed Analysis:

1. Classification and Excisability of Benzyl Methyl Salicylate (BMS):
The petitioner-company manufactures Salbutamol Sulphate and Benzyl Methyl Salicylate (BMS), which is an input for Salbutamol Sulphate. BMS is not sold in the market and is exclusively used for manufacturing Salbutamol Sulphate. The petitioner classified BMS as 'non-excisable' in their classification list for 1986-87. However, the Superintendent of Central Excise issued show cause notices classifying BMS under sub-headings 2942.00 and 2913.00, leading to an adjudication order that classified BMS under "other organic compounds" and held it as excisable. This order was challenged, and the court remanded the matter for a fresh order, which was again challenged on similar grounds.

2. Marketability as a Criterion for Excise Duty:
The main contention revolves around whether BMS is a marketable commodity, which is essential for attracting excise duty. The Assistant Collector's de novo order reiterated that marketability is not a criterion for classification under the Central Excise Act, relying on Rule 2(a) of the Rules of Interpretation. The petitioner argued that this stance contradicts Supreme Court decisions, which emphasize that marketability is crucial for determining excisability. The Supreme Court in multiple cases, including Union of India v. Delhi Cloth Mills, Union Carbide v. Union of India, and Geep Industrial Syndicate v. Union of India, has held that goods must be marketable to attract excise duty.

3. Compliance with Judicial Directions and Application of Supreme Court Precedents:
The petitioner argued that the Assistant Collector's order defied the High Court's earlier direction and Supreme Court precedents by not considering the marketability test. The Assistant Collector failed to reference the Supreme Court decisions cited by the petitioner, leading to a conclusion that the adjudicating authority did not judiciously apply the law. The High Court emphasized that marketability remains a time-honored test for excisability, even for transient items captively consumed in manufacturing other products. The court noted that the Assistant Collector's order was a replica of the previous order, ignoring the High Court's directive and Supreme Court rulings.

Conclusion:
The High Court found that the Assistant Collector did not judiciously apply the law and failed to consider the marketability of BMS, as required by Supreme Court precedents. The court quashed the impugned order, directed the Department to refund the duty paid by the petitioner on BMS, and awarded costs to the petitioner. The court reiterated that marketability is an essential criterion for excisability, and the Department failed to provide evidence of BMS's marketability. The High Court's decision underscores the importance of adhering to judicial directions and established legal principles in excise matters.