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TMI Blog2022 (5) TMI 1393X X X X Extracts X X X X X X X X Extracts X X X X ..... r 02.01.2004 2,08,07,41,217/- 12/02 to 3/03 Ahmedaba d Electric 5 V/Adj/Ch-1/R- 1/Cr180/2003/Com mr 27.02.2004 2,62,13,89,938/- 01/03 to 06/03 Tata Electric 6 V/Adj/Ch-1/R- 1/Cr94/2004/Com mr 27.02.2004 3,89,62,21,763/- 04/03 to 12/03 Ahmedaba d Electric 7 V/Adj/Ch-1/R- 1/C1138/2004/Co mmr 20.05.2004 3,84,92,08,384/- 07/03 to 02/04 Tata Electric 8 V/Adj./Ch-1/R- 1/CR14/BPCL/Com mr./04 05.04.2005 22,36,63,705/- 3/04 to 12/04 Tata Electric 9 V/Adj/ch-1/R- 1/Cr3/2005/Commr 03.02.2005 41,58,120/- 1/04 to 9/04 Ahmedaba d Electric 10 V/Adj/Ch-1/R-1/Cr 47/Commr/M- 11/2005 22.09.2005 21,12,41,365/- 10/04 to 5/05 Ahmedaba d Electric & Tata Electric Total duty demanded 24,14,61,80,385/- 2.1 Respondent, a Public sector Undertaking, has a refinery for manufacture of petroleum products and organic chemicals falling under Chapter 27 and 29 of the First Schedule to the Central Excise Act, 1985 (in short "the tariff"). In their refinery they along with other goods produce Low Sulphur Heavy Stock (LSHS) (2711.19), Long Residues (LR) (2711.19) and Refinery gases (RG)(2713.30). 2.2 They captively consume LR and RG, for produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his appeal on the following grounds: * The adjudicating authority erred in applying the principle of marketability since there was no mention of the same in the show cause notice. Further, the fact that the respondents were captively consuming LR & RG in the manufacture of their final product itself shows that the impugned products are saleable and hence, marketable. Actual / physical sale is not relevant to determine marketability. * The adjudicating authority did not make any conclusive and real attempt to ascertain salability and the market enquiries were incongruous. The adjudicating authority made enquiries with Reliance Refinery, Kochi Refinery and M/s MRPL about the status of Refinery Gases and Long Residues: * Reliance Refinery (Exhibit 'B') vide their letter informed that they do not manufacture these products at all and hence when the said refinery does not manufacture these products, it cannot be concluded that there is no sale from the refinery; * Kochi Refinery (Exhibit 'C') informed that these products are not being cleared to outside buyers. Apparently, it is a policy of the refinery to not sell the products to outside buyers. Nevertheless, it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods are marketable. Once the two impugned goods pass the multiple tests of "marketability", "saleability", "of them being capable of being sold", the test of dutiability also succeeds, as has been held by various courts and authorities in catena of decisions as follows: * Delhi Cloth Mills [ 1977 (1) ELT (J177) (SC)] * Ilac Ltd. [1997 (94) ELT A61 (S.C.)] * Ambalal Sarabhai Enterprises [ 1989 (43) ELT 214 (S.C.)] * TISCO Ltd. [2004 (165) ELT 386 (S.C.)] * The adjudicating authority also erred in as much as prior to 1st July 2001, no duty was leviable on the intermediaries so long as they were not cleared outside the refinery in terms of Rule 143A of the Central Excise Rules, 1944. Further, prior to 01.07.2001, a refinery was declared as warehouse in terms of Rule 140(2) of the Central excise Rules, 1944 for the purpose of Chapter VII and Rule 143A permitted the owner of the refinery to undertake blending or manufacturing processes on the warehoused goods. Rule 144 provided for the clearance of warehoused goods only on payment of duty except when clearances were from one warehouse to another. However, after 01.07.2001, the refinery was no more declared as a warehouse. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er manufacture of final exempted product "LSHS") and not "inputs" as interpreted by the adjudicating authority. Therefore, once the two impugned goods were "intermediate goods", they also do not qualify as "inputs" and therefore are not eligible for the condition specified in Notfn. no. 67/95. * the reference to Rule 6(3)(b) of the CENVAT Credit Rules, 2001/2002/2004 in Para no. 29 of the order and its applicability in the instant matter is erroneous and incorrect. When the two impugned goods were definitely not "inputs" and were held as excisable final goods by the adjudicating authority itself, then the reversal of CENVAT of common inputs and payment of 10% of the price of exempt of final products does not arise. In fact, these two impugned final products were captively consumed and since no duty was paid on them, no CENVAT credit was also availed. Therefore, applicability of Rule 6(3)(b) of the CENVAT Credit Rules, 2001/2002/2004 could not even remotely be allowed. In fact, the adjudicating authority incorrectly and erroneously took cognizance of assessees hypothetical stance about applicability of Rule 6 of the CENVAT Credit Rules, 2001/2002/2004. In fact, as discussed earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation Declaration under rule 173 B of the Central Excise Rules, 1944. In that the assessee was showing 'Refinery Gas', one of the impugned goods classifiable under sub-heading 2711-19 for captive consumption under claim for exemption under Notification No. 67/95-C.E. * Two of the classification Declarations filed under Rule 173B-one dtd. 4/6/1998 (Page 5 to 13 of PB-III) and another dtd. 19/3/2001(Page 47 to 53 of Paper Book Vol. II) clearly show that respondents themselves considered the products to be excisable. * Respondent did not file any classification declaration for Long Residue (LR). But that does not imply that it is not marketable. It is undoubtedly marketable and it is internationally known as a marketable commodity. In the grounds of appeal, the Department has relied upon numerous internet materials to show that LR is a marketable commodity known to the commercial world. Some more are listed as below : * A tender dtd. 30/7/2019 for supply of cracking residue (and Long residue) downloaded from (https://www.go4worldbusiness.com). * Website Print-out dtd. 31/7/2019 showing Orpic Fuel Products in Oman including Low Sulfur Gas Oil, Long Residue and Bunker F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng residues and refinery gases as per the proviso to the notification is not admissible. * Respondents contend that the proviso to the notification is not applicable to their case. Its case is covered by the exception clause (vi) to the notification inasmuch as it has discharged the obligation prescribed in Rule 6 of the Cenvat Credit Rules, 2001. On a careful reading of this exception clause (vi), it would be quite apparent that this exception clause (vi) will be available only to an assessee who is a manufacturer of both dutiable and exempted final products and who has discharged the obligation in Rule 6 of the Cenvat Credit Rules, 2001. It is needless to say that an assessee who is availing the facility of Cenvat Credit Rules can only discharge the obligation prescribed in Rule 6 of the Cenvat Credit Rules, 2001. * Sub-rules in rule 6 are not alternative to each other. They are complimentary to each other. They have to be read together and when so read, it would be quite clear that the assessee has not discharged the obligation prescribed in Rule 6 of the Cenvat Credit Rules, 2001. * The present proceedings are concerned only with 'long residue' and 'refinery g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. In appeal before the Tribunal, the Tribunal held that prior to 1/7/2001, duty demand would not sustain as the Refinery was deemed warehouse. However, after 1/7/2001, the appellant would be liable to pay excise duty and the benefit of Notification No.67/95-C.E. would be available to BHGO and Naphtha subject to the condition that no input duty credit has been availed in respect of BHGO and Naphtha used in the manufacture of exempted final products. It is submitted that the ratio of this decision will not apply to the present case where the facts are clearly distinguishable. * In the case of Ambuja Cement Ltd. [2015 (326) ELT 13 (S.C.)] Hon'ble Apex Court has dealt with the relevant notification No.67/95-C.E. Briefly stated, in that case the appellant-assessee was the manufacturer of 'Clinker' and 'Cement'. Clinker, an intermediate product was utilised in the manufacture of Cement. Clinker was dutiable, while Cement was exempt under Notification No. 50/2003-CE dtd. 10/6/2003. The appellant claimed exemption from duty in respect of 'Clinker under Notification No. 67/95-CE dtd. 16/3/1995. There was no dispute that the appellant had discharged the obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted by the Revenue along with the appeal / synopsis (across the bar) is liable to be rejected. * Application for placing additional evidence on marketability on record, if any, is liable to be dismissed for want of sufficient cause. * Respondents in their reply dated 19.10.1996 to the audit objection (page 33 of Vol. II filed by Revenue) had disclosed the entire factual position. The department therefore should have brought evidence on record to prove marketability while issuing the first show cause notice in February 2003. The department therefore could have very well produced evidence to prove marketability of LR & RG while issuing the subsequent show cause notices, if not earlier. Having not done so, in spite of several opportunities, the department is precluded from producing the additional evidence on marketability at this stage, as has been held in (i) Kulkarni Black And Decker Ltd [ 1992 (57) ELT 401 (Bom.)] (ii) Prakash Pipes & Industries Ltd. [1993 (68) ELT 779 (T)] (iii) Vaigai Thread Processors Ltd. [2004 (169) ELT 82 (T)] (iv) Industrial Security Service [2007 (8) STR 178 (T)] * Review order as well as the Revenue's appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o of the decisions as follows, they benefit under Notification 67/95 is admissible to them. * Hindustan Petroleum Corporation Ltd. [2013 (287) ELT 102 (T)] * Ambuja Cement Ltd. [2015 (326) ELT 13 (SC)] * Godavari Sugar Mills Ltd. [2007 (212) ELT 234 (T)] Affirmed in 2015 (319) ELT A69 (Kar.) * Sakthi Sugars Ltd. [2008 (230) ELT 676 (T)] Affirmed in 2016 (332) ELT A194 (SC) * Funskool India Ltd [2009 (244) ELT 591 (T)] * Funskool India Ltd. [2017 (357) ELT 434 (T)] * Lanco Industries Ltd. [2008 (227) ELT 395 (T)] * Bhushan Steel & Strips Ltd. [ 2015 (326) ELT 729 (T)] * It is settled law that demand for the extended period of limitation is sustainable only when suppression of facts with intent to evade duty is proved beyond reasonable doubt. 5.1 We have considered the impugned order along with the submissions made in appeal and during the course of argument on appeal. 5.2 Undisputedly Respondents are Public Sector Undertaking, and in their refinery produce various petroleum products> During the course refining of crude oil two products namely "Refinery gas" and "Long Residue" also arise. These are consumed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 29 of the Tariff. Refining is the principal process that brings into existence all these products including the impugned goods. As this process leads to the emergence completion of the impugned goods, it is a manufacture within the meaning of Section 2(f) CEA. It is noteworthy that the noticee has not disputed the nature of impugned goods being manufactured. 15. What the noticee has, however, disputed is the marketability of these goods. They have contended that neither of the impugned goods are marketable and as per the law laid down by the apex Court, therefore, these are not liable to excise duty. The noticee has further argued that the burden to prove the marketability of the impugned goods was on the Department. They have placed reliance on several decisions of the apex court enumerated in para 9 (A) (vi) supra. 16. In Hindustan Petroleum Corporation Ltd. vs. Union of India, reported in 1999 (112) ELT 8 (SC), dutiability of burner fuel oil was in dispute. Like LR of the noticee, burner fuel oil was also a residue which remained in the distillation column in the refinery after the crude oil had been processed and better known products taken out. Referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal silence of the show cause notices on the issue lead in the absence of any other evidence to the contrary, only to one inevitable conclusion that the impugned goods are not marketable." 5.4 The threefold test to determine the dutiability of the goods that Commissioner has referred in his order cannot be disputed as these have been laid down by the Hon'ble Apex Court since ages. These are the basic tests before any goods can be subjected to excise duty. If the reply to any of the test is negative then the goods cannot be subjected to duty of excise under the Central excise Act, 1944. 5.5 Undisputedly the test of manufacture as per section 2(f) of Central Excise Act, 1944 and excisablity as per Section 2(d) is satisfied. The whole issue that needs to be determined is vis a vis the marketability of the impugned goods. Show Cause Notice issued to respondent, were silent on this aspect of marketability, so Commissioner himself conducted enquiries from the independent sources and on the basis of the enquiries conducted concluded that the impugned goods are not marketable and hence not dutiable. In our view Commissioner was not required to take such an exercise and it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stos rings and asbestos fabrics is immaterial......... The material point is that their asbestos rings and fabrics are marketable products, though marketable to a particular section of the industry only......... The articles in dispute before us are high value finished asbestos products and if the terms offered are right the smaller manufacturers of brake linings and clutch facings would certainly be interested in buying them". 3. It is not in dispute before us, as it cannot be, that the onus of establishing that the said rings fell within Item 22F lay upon the Revenue. The Revenue led no evidence. The onus was not discharged. Assuming therefore, that the Tribunal was right in rejecting the evidence that was produced on behalf of the appellants, the appeal should, nonetheless, have been allowed. 4. It is not the function of the Tribunal to enter into the arena and make suppositions 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 manufacturer of brake linings and clutch facings "would be interested in buying" the said rings or that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt to mean that the goods so produced must satisfy the test of marketablity. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed. 7. The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced by the Revenue to show the product unvulcanized sandwiched fabric as such as 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." 27. The Apex Court, thus, was of the opinion that mere hypothetical possibility of a purchase and sale of the commodity is not sufficient proof that the product is commercially known. 28. In case of Union of India and Others v. Sonic Electrochem (P) Ltd. and Another, reported in (2002) 7 SCC 433 = 2002 (245) E.L.T. 274 (S.C.), the Supreme Court observed as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, the plastic body, which is a part of EMR of the respondents, is not "goods" so as to be liable to duty as parts of EMR under para 5(f) of the said exemption notification." 29. In case of Cadila Laboratories Pvt. Ltd. v. Commissioner of Central Excise, Vadodara (supra), the Apex Court referred to several decisions and observed as under : "9. Thus, the law is that in order to be excisable, not only goods must be manufactured i.e. some new product brought into existence, but the goods must be marketable. By marketable it does not mean that the goods must be actually bought and sold in the market. But the goods must be capable of being bought or sold in the market. The law also is that goods which are in the crude or unstable form and which require a further processing before they can be marketed, cannot be considered to be marketable goods merely because they fall within the Schedule to the Excise Act." 30. In case of Ladli Construction Company Private Limited v. Punjab Police Housing Corporation Limited and Others, reported in (2012) 5 SCC 609, the Supreme Court observed as under : "29. Except raising the vague and general objections that the arbitrator was bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, that merely because chemically the product is found to be stable, in our view, cannot be stated to be new or sufficient material to enable the Department to hold the view that such product is marketable." 5.8 Revenue has vehemently relied upon the web printout which do not establish the marketability of the impugned goods but only establish that the impugned goods are capable of being used in production of goods. These print outs only talk of emerging technologies. Three print outs of the year 2019, have been produced during the course of arguments to establish the marketability of the impugned goods. In our view the entire reliance placed by the revenue on the web material to establish marketability is devoid of any merits, and these web print outs cannot be relied in evidence at the stage of appeal or arguments as the marketability is not only a question of fact but is also very dynamic. With emergence of new technologies, products which were never marketable earlier may become marketable subsequently or the products which are marketable today may go in oblivion on a later date. The marketability for the purpose of levy of excise duty needs to be determined at the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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