2010 (4) TMI 58 - SC - Central Excise

Goods manufacture marketability - excisable goods - rubberized cotton fabrics - 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 sub-heading number 5905.10 of the schedule to the Central Excise Tariff Act, 1985. held that - No evidence has been produced by the Revenue to show the product unvulcanised 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 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. - The mere theoretical possibility of the product being sold is not sufficient but there should be commercial capability of being sold decided in favor of assessee

Issues Involved:
1. Classification of unvulcanised sandwiched fabric assembly as "goods."
2. Marketability and dutiability of the intermediate product.
3. Burden of proof regarding marketability.
4. Applicability of central excise duty.
5. Validity of show cause notices and penalties imposed.

Issue-Wise Detailed Analysis:

1. Classification of Unvulcanised Sandwiched Fabric Assembly as "Goods":
The primary question was whether the unvulcanised sandwiched fabric assembly produced by the Assessee and used captively could be classified as "rubberized cotton fabrics" under sub-heading 5905.10 of the Central Excise Tariff Act, 1985. The Tribunal's Member (Judicial) opined that the product would not attract duty unless proven marketable, while the Member (Technical) disagreed, leading to a final majority decision that the product was excisable.

2. Marketability and Dutiability of the Intermediate Product:
The Assessee argued that the intermediate product lacked commercial identity and marketability, crucial for dutiability. The Tribunal's majority held the product excisable, but the Supreme Court emphasized that marketability is essential for determining excisability. The Court cited previous judgments, including Union of India vs. Delhi Cloth and General Mills Co., to underline that marketability must be proven by the Revenue.

3. Burden of Proof Regarding Marketability:
The Court reiterated that the burden of proving marketability lies with the Revenue. The Revenue failed to provide sufficient evidence, relying only on a test report, a handbook, and a company statement. The Court criticized the Tribunal for making suppositions without concrete evidence, as highlighted in Hindustan Ferrado Limited, and emphasized that the Tribunal should not substitute technical knowledge for evidence.

4. Applicability of Central Excise Duty:
The Supreme Court held that the intermediate product was not marketable in its current form and thus not excisable. The Revenue's failure to demonstrate the product's marketability meant it could not be classified under sub-heading 5905.10 for central excise duty purposes. The Court referenced multiple cases, including Cipla Limited and Gujarat Narmada Valley Fertilisers Corporation, to support its stance on the necessity of marketability for excisability.

5. Validity of Show Cause Notices and Penalties Imposed:
The Court found the show cause notices and penalties imposed by the Commissioner of Central Excise invalid due to the lack of evidence on marketability. The Assessee's detailed objections and supporting affidavits demonstrated that the product was an intermediary used for captive consumption without commercial identity. Consequently, the Court quashed the show cause notices and set aside the Tribunal's order.

Conclusion:
The Supreme Court allowed the appeal, set aside the Tribunal's order, and quashed the show cause notices issued to the Assessee. The Court directed the Tribunal to dispose of the appeal without delay, considering the product was exempted from duty if used captively for manufacturing exempted footwear as per Notification No.143/94-CE dated 7.12.94.

← Previous Next →