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Issues Involved: Classification of unvulcanised friction cloth, dutiability under Central Excise Tariff Item No. 19I(b), marketability of intermediate products, and interpretation of relevant legal provisions and precedents.
Issue 1: Classification of Unvulcanised Friction Cloth The petitioner, a public limited company, manufactures fan belts and V-belts, which involves using a sticky material called 'friction cloth'. The petitioner contends that this friction cloth, which is an intermediate product in the manufacturing process, should not be classified as 'cotton fabrics' under Tariff Item No. 19I(b) of the Central Excises and Salt Act, 1944. The authorities, however, classified it under this tariff item, leading to the imposition of excise duty. Analysis: The court examined the process of manufacturing the belts, noting that friction cloth is an intermediate product that emerges during the continuous and uninterrupted manufacturing process. The petitioner argued that friction cloth has no commercial characteristic and is not known in the market as a distinct product. The authorities' classification was based on the interpretation that 'rubberising' is a manufacturing process under Section 2(f)(v) of the Central Excises and Salt Act, and thus, friction cloth falls under Tariff Item No. 19I(b). Issue 2: Dutiability Under Central Excise Tariff Item No. 19I(b) The authorities argued that friction cloth, although not generally marketed, is captively used in manufacturing finished goods and thus falls under Tariff Item No. 19I(b). The petitioner challenged this classification, arguing that friction cloth is not a marketable product and therefore should not be subject to excise duty. Analysis: The court reviewed several judicial precedents, including Punjab Rubber and Allied Industries v. Union of India and Brammer V. Link Belting (I) Ltd. v. Appellate Collector of Central Excise, which held that intermediate products not known in the market as distinct goods are not dutiable. The court noted that the authorities' reliance on the classification of friction cloth under Tariff Item No. 19I(b) was mistaken, as it did not consider the product's marketability, which is a crucial criterion for dutiability. Issue 3: Marketability of Intermediate Products The core of the dispute revolved around whether friction cloth, as an intermediate product, is marketable and thus liable to excise duty. The authorities argued that the product's marketability is irrelevant as long as it fits the tariff description. Analysis: The court referred to Supreme Court decisions in Bhor Industries Ltd. v. Collector of Central Excise and Collector of Central Excise v. Ambalal Sarabhai Enterprises, which established that marketability is an essential ingredient for dutiability. The court emphasized that for an article to be dutiable, it must be known in the market as a distinct commodity. The court found that friction cloth is not marketed or known in the market as a separate product, and its transient nature further supports its non-dutiability. Issue 4: Interpretation of Relevant Legal Provisions and Precedents The authorities based their classification on a departmental clarification and interpretations of various High Court judgments, which they believed did not tie dutiability to marketability. Analysis: The court clarified that the Supreme Court's rulings supersede these interpretations, establishing that marketability is a fundamental criterion for dutiability. The court held that the authorities' approach was incorrect and that friction cloth, not being a marketable product, does not fall under Tariff Item No. 19I(b). Conclusion The court quashed the impugned order dated 22-1-1985, holding that unvulcanised friction cloth used in the manufacturing process of belts is not dutiable under Tariff Item No. 19I(b) of the Central Excise Tariff. The court emphasized that marketability is a crucial determinant for dutiability, aligning with Supreme Court precedents. Consequently, the petitioner's writ petition was allowed, and no costs were imposed.
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