VENDABILITY TEST

[Mr. M. GOVINDARAJAN]

In 'Hindustan Zinc Limited V. Commissioner of Central Excise' - 2005 -TMI - 47213 - (SUPREME COURT OF INDIA) the Supreme Court held that before Central Excise duty can be imposed on any article, it must satisfy two basic conditions-

* The article should be 'goods'; and

* It should have come into existence as a result of manufacture.

If either of the above two conditions is not satisfied the Central excise duty cannot be levied.

The Central Excise law does not define 'goods'. Sec. 2(d) of Central Excise Act, 1944 defines 'excisable goods' as goods specified in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty excise and includes salt. The explanation to this clause provides that 'goods' includes any article, material or substance which is capable of being brought and sold for a consideration and such goods shall be deemed to be as marketable.

The test of marketability is called as 'Vendability test' which has been elaborately considered by the Supreme Court in 'Union of India V. Delhi Cloth and General Mills Company Limited' - AIR 1963 SC 791. The Supreme Court, in this case, held that the marketability is essentially a question of facts to be decided on the facts of each case and there can be no generalization, and the fact that goods are not in fact marketed is of no relevance and the question whether they are capable of being marketed. Even the assessee is not marketing the product but still the question is whether the product is capable of being marketed.

In 'Union of India V. Sonic Electrochem Private Limited' - 2002 -TMI - 46336 - (SUPREME COURT OF INDIA) the Supreme Court was dealing with the question whether plastic body, a part of electronic mosquito repellant and the fragrant mat are chargeable to excise duty under Articles 5(f) of Notification No. 160/86-CE, dated 01.03.1986 and sub heading 3307.49 respectively of the Central Excise and Tariff Act, 1986. The Supreme Court held that in order to establish that goods are liable to duty, two tests have to be satisfied-

* Manufacture; and

* Marketability.

On the question of marketability of the articles the Supreme Court held that marketability of goods has certain attributes. The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being got and sold. The fact that product in question is generally not been got and sold or has no demand in the market would be irrelevant. The plastic body of EMR does not satisfy the aforementioned criteria. There are some competing manufacturers of EMR. Each is having a different plastic body to suit its design and requirement. If one goes to the market to purchase plastic body of EMR of the respondents either for replacement or otherwise one cannot get it in the market because at present it is not a commercially known product. For these reasons, the plastic body, which is a part of the EMR of the respondents, is not 'goods' so as to be liable to duty as parts of EMR under para 5(3) of the said exemption notification.

In 'Cipla Limited V. Commissioner' - 2008 -TMI - 48183 - (SUPREME COURT OF INDIA) the Supreme Court was examining the question whether Benzyl Methyl Salycylate (BMS) is marketable and therefore liable to excise duty. In this case the Supreme Court held that since marketability is an essential ingredient to hold that a product is dutiable or exigible, it was for the Revenue to prove that the product was marketable or was capable of being marketed. Manufacturing activity, by itself, does not prove the marketability. The product produced must be a distinct commodity known in the common parlance to the commercial community for the purpose of buying and selling. Since there is no evidence of either buying or selling in the present case, it cannot be held that the product in question was marketable or was capable of being marketed. Mere transfer of BMS by the appellant from its factory at Bangalore to its own unit at Patalganga for manufacture of final product was either marketed or was marketable.

In 'Gujarat Narmada Valley Fertilizers Company Limited V. Collector' - 2008 (184) ELT 128 (SC) the Supreme Court was dealing with the question whether the intermediate chemicals, which are formed in the process of manufacture Butachlor are liable to tax under the Salt Act and held that the test report produced by the Revenue will not establish the marketability of the product. It further held that unless the product is capable of being marketed and is known to those who are in the market as having an identity as distinctly identifiable that the article is subject to excise duty, the product cannot be treated as a product that is marketable.  Marketability cannot be established by mere stability of the product. Something more would have to be shown to establish that the products are known in the market as commercial product.

In 'Hindustan Ferodo Limited V. Collector' - 1996 -TMI - 44402 - (SUPREME COURT OF INDIA) explained the function of the Tribunal in this matter. It held that it is not the function of the Tribunal to enter into the arena and make supposition that are tantamount to the evidence that a party before it has failed to lead. Other than supposition, there is no material on record that suggests that a small scale or medium scale manufacture of brake linings and clutch facings 'would be interested in buying' the said rings or that they are marketable at all. As to the brittleness of the said rings, it was for the Revenue to demonstrate that the appellants' averment in this behalf was incorrect and not for the Tribunal to assess their brittleness for itself. Articles in question in an appeal are shown to the Tribunal to enable the Tribunal to comprehend what it is dealing with. It is not invitation to the Tribunal to give its opinion thereon, brushing aside the evidence before it. The technical knowledge of members of the Tribunal makes for better appreciation of the record, but not its substitution.

In 'Bata India Ltd., V. Commissioner of Central Excise, New Delhi' - 2010 (252) ELT 492 (SC) the question that arises for consideration in the appeal is whether unvulcanised sandwiched fabric assembly produced in the assessee's factory and captively consumed can be termed as 'goods' and can be classified as 'rubberized cotton fabrics' falling under the sub heading number 5905.10 of the schedule to theCentral Excise Tariff Act, 1985. The Judicial Member of the Tribunal took the view that the product would not attract duty unless it is established that the goods in question is marketable or capable of being marketed as a distinct product and that the Revenue has failed to discharge the burden to prove the marketability and dutiability of the intermediate product in the manufacture of rubber/canvas foot wear. The Member (Technical) however disagreed with the finding and held that the Revenue has discharged its burden and took the view that the goods in question attract duty. In view of the difference of opinions expressed by the two members the matter was placed before a third member who concurred with the view expressed by the Member (Technical) and a final order was passed holding that double textured rubberized fabric/unvulcanized sandwiched fabric is an excisable product liable to central excise duty. 

The Court found that it is sufficient to say that the product in question is used as an intermediate product goes to make the component for the final product. The burden to show that the product in question is marketed or capable of being bought or sold in the market so as to attract duty is entirely on the Revenue. Revenue in this case has not succeeded in establishing that the product in question was either marketed or was capable of being marketed. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. No evidence has been produced by the Revenue to show the product unvulcanized sandwiched fabric as such is capable of being marketed, without further processing. The question is not whether there is an hypothetical possibility of a purchase and sale of the commodity but whether there is sufficient proof that the product is commercially known. The mere fact that the product in question was entrusted outside for some job work such as stitching is not an indication to show that the product is commercially distinct or marketable product. Without proof of the marketability the intermediate product would not be goods much less excisable goods. Such a product is excisable only if it is a complete product having commercial identity capable of being sold to a consumer which has to be established by the Revenue.