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Thursday, April 30, 2015

whether excise duty is payable on an intermediate product, namely, Transmission Assembly which comes into existence during the manufacture of tractors made by the appellant.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.6561 OF 2004




      M/S. ESCORTS LTD.                                …APPELLANT




                                   VERSUS


      COMMISSIONER OF CENTRAL
      EXCISE, FARIDABAD                              ...RESPONDENT


                                    WITH


                         CIVIL APPEAL NO.457 OF 2006


                                    WITH
                     CIVIL APPEAL NOS.9469-9470 OF 2010




                               J U D G M E N T

      R.F. Nariman, J.

      C.A. NO.6561 OF 2004

      1.    The present case raises an interesting question  as  to  whether
      excise  duty  is  payable  on   an   intermediate   product,   namely,
      Transmission  Assembly  which  comes   into   existence   during   the
      manufacture of tractors made by the appellant. The period involved  is
      January 1996 to May 1998.  The tractors  that  are  manufactured  have
      engines that are below  1800  CC  and  are  covered  by  an  exemption
      notification 162/1986.  We are informed, however, that after  1.6.1998
      this exemption has gone and even tractors of  an  engine  capacity  of
      less than 1800 CC now have to bear excise duty.

      2.    By a show cause notice dated 31.1.2001, the Department  for  the
      period aforesaid relied upon evidence in the form of  statements  made
      by various officers of the appellant and other documentary evidence to
      show that Transmission Assemblies of tractors was a commodity known to
      the market as such and, therefore, came into the category of excisable
      goods.  The respondent by their  reply  dated  1.10.2001  denied  this
      stating that no separate product known as Transmission Assemblies came
      into existence which is known to the commercial community as such and,
      therefore, there was neither  manufacture  nor  marketability  of  the
      same. In the reply, however, various statements were  made  which,  in
      fact, amount to  admissions, that Transmission Assembly of  a  tractor
      is, in fact, known to the market as such.  These  admissions  are  set
      out hereinbelow:

           “16.  It is submitted that transmission assemblies are  in  fact
           interchangeable.  The Transmission Assembly can be used in  both
           dutiable as well as exempt tractors, for example in Model No.325
           (exempt  tractor)   and   Model   No.335   (dutiable   tractor).
           Therefore, it serves  as  a  common  input  for  both  tractors.
           Therefore, in terms of provisions of Rule 57CC MODVAT credit  is
           admissible on the common inputs which form part of  transmission
           assemblies in turn used in the  manufacture  of  both  types  of
           Tractors.

           47.1.       The department has  relied  upon  the  case  of  M/s
           International  Tractors  Ltd.,  Hoshiarpur  who  are   supplying
           transmission assemblies.

                 (a)   The Notice contends that  M/s.  Mahindra  &  Mahindra
           have not  purchased  any  transmission  assemblies  for  use  in
           tractors from any other unit.  Further, they have  not  supplied
           or transferred any transmission assemblies to any other  person.
           However, they have been supplying the transmission  assembly  to
           their own  units  at  Nagpur  and  Rudhrapur  for  manufacturing
           tractors.

                 (b)   It is submitted that this letter can at most lead to
           a conclusion that the transmission assembly made by M & M is
           marketable.

           50.   The show cause notice has placed reliance on certain other
           web site to contend  that  the  Hoovers  on-line  web  site  and
           Carraro web site shows that transmission assemblies are marketed
           and sold.  It is  submitted  that  while  there  might  be  mass
           production  of  transmission  assemblies  marketed  by   Hoovers
           Carraro, etc., the product specific transmission  assemblies  of
           the noticees never come to the market and have never been  sold.
           Hence, there can  be  no  question  of  demanding  duty  on  the
           transmission assemblies made on the assembly line and  used  for
           assembling the tractors in the noticees      factory.  These are
           not marketable and hence, are not goods and there is no  removal
           under Rule 9 and 49.”



      3.    The Commissioner by an order dated 4.10.2002 held as follows:-

           “41. I find that the issue has been well examined in the notice.
           Noticee's plea that the impugned transmission assemblies are not
           goods  as  transmission  assemblies  do  not  have   independent
           existence is without merit. Noticee in fact itself  clears  such
           goods on payment of duty to ECEL,  Transmission  assemblies  are
           well known in the commercial world and are very much dealt  with
           as a commercial commodity. The end  use  as  put  forth  in  the
           notice amply proves it. To reiterate transmission assemblies are
           cleared by  the  noticee  to  ECEL;   noticee  company's  sister
           concern (Farmtrac  Division)  imported  transmission  assemblies
           from Carraro Spa  of   Italy  and  also  purchased  transmission
           assemblies from Carraro India Limited, Pune; M/s TAFE,  Chennai,
           International Tractors Ltd., Hoshiarpur, Mahindra & Mahindra all
           deal  in  transmission  assemblies   and   further   information
           regarding transmission assembly availability  as  such  is  also
           available on internet.

           42.  Noticee's  submission  that  no  identifiable  transmission
           assembly  emerges  in  their  production  of  Tractors  is  also
           incorrect. They are manufacturing  transmission  assemblies  for
           their tractors as well  as  for  ECEL.  Of  course  transmission
           assemblies meant for different models of machines/vehicles  will
           be of slightly different specifications from each other but as a
           whole transmission assemblies are  one  identifiable  commercial
           product as already discussed. I also  note  that  the  concerned
           persons of the noticee company  themselves  have  admitted  that
           transmission  assemblies  do  emerge  as   identifiable   goods.
           Statements of Sh.  K.K.  Kachroo,  Manager  Excise,  Shri  Vinod
           Ahuja, Plant Head, Sh.  Ramesh  Kumar  Khurana,  Chief   Manager
           Production all admit this fact. Even otherwise manufacturing  of
           the tractors in the noticee's factory cannot be accepted as such
           a continuous process in which  raw  materials  are  fed  in  the
           machine at one end and final product emerges at another. Only in
           such a case, can it be believed that  there  is  no  independent
           identifiable intermediate stage  of  goods.   The  procedure  as
           adopted by the noticee is basically assembly of various parts  &
           components and of course all these parts and  accessories  which
           are manufactured by the noticee in their factory as identifiable
           goods are excisable themselves. Therefore, the emergence of I.C.
           Engines  is  excisable  and  so  also  the  ?emergence   of   the
           transmission assembly is also excisable. In fact in the case  of
           Pratap Rajashtan Copper Foils Vs. CCE -1999(109) ELT 288 (T)  it
           was held that duty is payable on intermediate products  even  if
           some minor processes  were  not  carried  to  make  the  product
           marketable.

           43. I also find that the noticee in their reply has  laid  great
           emphasis on their argument that their tractors are  manufactured
           as a result of integrated manufacturing process on the  assembly
           line and therefore there is no removal of intermediate goods, if
           any, in terms of Rule 9 or Rule 49. I  have  to  reiterate  that
           noticee's plea is inadmissible. In terms  of   Rule  9  and  49,
           intermediate goods emerging during such integrated assembly line
           production would be deemed to have been cleared  for  production
           and therefore liable to Central Excise duty.  Besides  facts  of
           the case are entirely  different  as  has  been  stated  by  the
           noticee  company's  concerned  persons  in   their   statements.
           Assembly of a vehicle or machine  on  line  or  otherwise  still
           remains assembly i.e. various parts and  components  are  either
           manufactured first by the  assessee  himself  or  procured  from
           outside and then assembled to produce the resulting machine. All
           excisable goods emerging during such assembly or production  are
           themselves excisable as intermediate  goods  meant  for  captive
           consumption unless or until  specifically  exempt.  Transmission
           assembly  is  one  such  excisable  intermediate   product   and
           therefore its duty liability ?is obvious. Therefore, I hold  that
           these are independent, identifiable, commercial goods capable of
           being  bought  and  sold  in  the  market  and,  therefore,  are
           excisable goods leviable to Central Excise duty under Section  3
           of the Central Excise  Act,  1944.  That  impugned  transmission
           assemblies have been used captively in  production  of  Tractors
           cleared at Nil rate of duty is not denied by  the  noticee.  The
           captive consumption exemption Notification No. 67/95-C  E  dated
           16.3.95, as amended, debars such intermediate products  used  in
           production of exempt final products,  from  the  duty  exemption
           under the notification. As the final product i.e. Tractors  were
           exempt, the impugned transmission assemblies did attract Central
           Excise duty. I hold that all the observations in the show  cause
           notice regarding excisability of the impugned goods are correct.
           I also note that as far as the classification of the product  is
           concerned, the same has not been challenged by the noticee.”



      4.    By the impugned judgment dated 27.5.2004, CESTAT  dismissed  the
      appeal holding:

           “6.   We have considered the submissions of both the sides.  The
           Central Excise duty is leviable on goods manufactured in  India.
           "Manufacture" as per the judgment of the Supreme Court   in  the
           case of Union of  India vs. Delhi Cloth and General Mills,  1977
           (1) ELT (J 199)  "implies  a  change  ....  and  there  must  be
           transformation; a new and different article must emerge having a
           distinctive name, character or use."

           The Supreme Court, after referring to various judgments  on  the
           concept of the manufacture, has laid down a two  fold  test  for
           deciding whether the process is that of "manufacture"  in  Union
           of India vs.  J. G. Glass, 1998 (97)  ELT  5(S.C.)  as  follows,
           "First, whether by the  said  process  a  different   commercial
           commodity comes into existence or whether the  identity  of  the
           original commodity  ceases  to  exist;   secondly,  whether  the
           commodity which was already in existence will serve  no  purpose
           but for the said purpose.”  We find that  this  two  fold  tests
           laid down by the Supreme Court is satisfied in  respect  of  the
           transmission assembly coming into existence during the course of
           manufacture of tractors by the  Appellants.  After  assembly  of
           various parts and components a new and different  article  known
           as transmission assembly  emerges  having  a  distinctive  name,
           character and  use and but for the  manipulation  undertaken  by
           the  Appellants, the parts and components would not have  served
           the  purpose  which  a  transmission  assembly  performs.    The
           impugned product  is  also  marketable  as  the  learned  Senior
           Departmental Representative has mentioned the fact of its  being
           imported by the Appellants themselves (Farmtrac  Division);  the
           clearance of the transmission  assembly  by  the  Appellants  to
           their subsidiary company  M/s.  Escorts  Construction  Equipment
           Ltd. and the removal of transmission assembly by  M/s.  Tractors
           and Farm Equipment Ltd. The mere fact that the impugned  product
           is meant only for the tractors manufactured  by  them  will  not
           mean that the impugned product is not capable of  being  brought
           to the market for being bought and sold. The  Supreme  Court  in
           the case of A.P. State Electricity  Board  vs.  CCE,  Hyderabad,
           1994 (70) ELT 3  (S.C.)  has  held  that  the  marketability  is
           essentially a question of fact to be decided  in  the  facts  of
           each case. The fact that the goods are not, in fact, marketed is
           of no relevance. So long the  goods  arc  marketable,  they  are
           goods for the purpose of Section 3 of the Central Excise Act. It
           is not necessary that the goods should be generally available in
           the market. We, therefore, uphold the finding  in  the  impugned
           order that the  transmission  assembly  is  an  excisable  goods
           exigible to Central Excise duty.”




      5.    Shri Lakshmikumaran, learned advocate for the  appellant  argued
      that the tractors manufactured by the appellant (having engines  of  a
      capacity of less than 1800 CC) had no such  thing  as  a  Transmission
      Assembly. The so-called Transmission Assembly was only an aggregate of
      various items which connected the  engine  of  the  tractor  with  its
      wheels. Further, the so-called Transmission Assembly was  specifically
      designed for the appellant’s tractor  and  was  not  saleable  in  the
      market. Also, not a single instance of sale in  the  market  had  ever
      taken place.  In fact, the so-called  Transmission  Assembly  was  not
      something which  came  into  existence  at  all  but  was  part  of  a
      continuous process on the assembly line in the appellant’s factory  of
      manufacture  at  the  end  of  which  a  complete  tractor  came  into
      existence.  He further submitted that post 1.6.1998 in any  case,  the
      appellant  had been paying 8% under Rule 57 CC on  the  value  of  the
      said Transmission Assembly as required.  It is  only  for  the  period
      upto August 1996 that would be in dispute. Even for  this  period,  he
      contends that ultimately the figures would show that  it  was  revenue
      neutral in that MODVAT credit reversed for this period would amount to
      1.71 crores, the duty demand being approximately 2.43 crores out of  a
      total of 9.66 crores for this period of 8 months.  He also argued that
      the duty demand was absurd in that the Transmission Assembly  of  TAFE
      which is said to be the same as that  of  the  petitioner’s  was  only
      13,000 rupees per piece as opposed to the highly  inflated  figure  of
      Rs.53,790/-. If the figure of Rs.13,000/- is to be taken, it is  clear
      that the reversal of MODVAT credit would amount to much more than  the
      duty demand itself.  He further argued that in any  case  since  there
      was no fraud or willful suppression of facts,  invoking  the  extended
      period of limitation was not in order and that in any  case  the  show
      cause notice being beyond one year of the stated period would have  to
      be quashed on this ground alone.

      6.    Shri Jaideep Gupta,  learned  senior  counsel  for  the  revenue
      contended that the Transmission Assembly was very much excisable goods
      known to the market as such from  the  statements  of  the  appellants
      themselves.  Further, the revenue had discharged its  burden  by  oral
      and documentary evidence which showed beyond doubt  that  Transmission
      Assembly of tractors were excisable goods in that a new commodity came
      into existence  known  to  the  market  as  such.   It  is  completely
      irrelevant that no sale actually took place of any  such  Transmission
      Assembly.  It is enough to show that the said goods  were  capable  of
      being sold which, undoubtedly, they were.  He very fairly stated  that
      on valuation, if necessary, the matter could  be  remanded.   He  also
      stated that the extended period of limitation  was  available  in  the
      present case as the appellants on their  own  showing  knew  that  the
      intermediate product of Transmission Assemblies was marketable as such
      and had suppressed this fact while claiming exemption of  excise  duty
      on the finished product, namely, the tractor.

            We have heard learned counsel for the parties.  It is important
      in matters like this to begin at the beginning. Entry 84 List I of the
      7th Schedule of the Constitution of India reads as follows:

           “SEVENTH SCHEDULE

           [Article 246]

           List I — Union List

           84. Duties of excise on tobacco and other goods manufactured  or
           produced in India except—

           (a) alcoholic liquors for human consumption;

           (b) opium, Indian hemp and other narcotic drugs and narcotics,

           but  including  medicinal  and  toilet  preparations  containing
           alcohol or any substance included in sub-paragraph (b)  of  this
           entry.”




      7.    It is clear on a reading of this Entry that a duty of excise  is
      only leviable on “goods” manufactured or produced  in  India.  “Goods”
      has been defined under Article 366 (12) as follows:

           “366. Definitions.—In  this  Constitution,  unless  the  context
           otherwise requires, the following expressions have the  meanings
           hereby respectively assigned to them, that is to say—

           (12) “goods” includes all materials, commodities and articles;”



      8.    Each of these three expressions has been defined in the  Shorter
      Oxford English Dictionary as follows:-

      “Materials” – the matter of which a thing is  or  may  be  made;   the
      constituent parts of something.

      “Commodities” – a thing of use or value; a thing that is an object  of
      trade; a thing one deals in or makes use of.

      “Articles” - a particular item of business.



      9.    Although the definition of “goods” is an inclusive  one,  it  is
      clear that materials,  commodities  and  articles  spoken  of  in  the
      definition take colour from one another.  In order to be “goods” it is
      clear  that  they  should  be  known  to  the  market  as   materials,
      commodities and articles that are capable of being sold.

      10.   In the basic judgment which has been referred to in every excise
      case for conceptual clarity, namely, Union of India v. Delhi Cloth.  &
      General Mills Co. Ltd., 1963 Suppl. 1 SCR 586, this  Court  held  that
      for excise duty to be chargeable under the constitutional  entry  read
      with Section 3 of the Central Excise and Salt Act, two  pre-requisites
      are necessary.  First, there must be “manufacture” which is understood
      to mean the bringing into existence of a new substance.  And secondly,
      the word “goods” necessarily means that such  manufacture  must  bring
      into existence a new substance known  to  the  market  as  such  which
      brings in the concept of marketability in addition to manufacture.   A
      large  number  of  judgments  have  explained   what   is   meant   by
      marketability in this context.  In A.P.  State  Electricity  Board  v.
      Collector of Central Excise, Hyderabad, (1994) 2 SCC 428,  this  Court
      referred to  a  large  number  of  previous  judgments.   Firstly,  it
      referred to Union v. Delhi Cloth and General Mills.  It then  referred
      to South Bihar Sugar Mills Limited V. Union of India, (1968) 3 SCR 21,
      in which kiln gas which was a mixture  of  gases  generated  during  a
      process of burning limestone with coke in a lime kiln was held not  to
      be a  marketable commodity.  Since it was a mixture of gases  and  not
      only carbon dioxide, it was clear that it was not known to the  market
      as such. Carbon dioxide was only a component of kiln gas, the  content
      of which ranged from 27 to 36.5%.  The  Court  also  referred  to  the
      decision in Union Carbide India Limited v. the Union of India,  (1986)
      2 SCC 547, in which aluminum cans in crude form used as a torch bodies
      were held to be not capable of sale to a consumer in their  crude  and
      unfinished form.  To be made saleable, such cans would have to undergo
      various processes such as, trimming,  threading  and  re-drawing.  The
      Court also referred to Bhor Industries Ltd. v.  Collector  of  Central
      Excise, Bombay, (1989) 1 SCC 602.  In that  case,  it  was  held  that
      crude PVC films manufactured as an intermediate product  and  used  in
      captive consumption of other goods was not marketable, not being known
      to the market as such.  The Court also  referred  to  CCE  v.  Ambalal
      Sarabhai, (1989) 4 SCC 112 in which an intermediate  product,  namely,
      starch hydrolysate was not marketable in that it was  highly  unstable
      and fragmented quickly losing its  character  in  a  couple  of  days.
      After referring to all these judgments, the Court held:

           “10. It would be evident from the facts and ratio of  the  above
           decisions that the goods in each  case  were  found  to  be  not
           marketable. Whether it is refined oil (non-deodorised) concerned
           in Delhi Cloth and General Mills [1963 Supp 1 SCR 586 : AIR 1963
           SC 791] or kiln gas in South Bihar Sugar Mills [(1968) 3 SCR  21
           : AIR 1968 SC 922] or aluminium cans with rough  uneven  surface
           in Union Carbide [(1986) 2 SCC 547 : 1986 SCC (Tax) 443 : (1986)
           2 SCR 162] or PVC films in Bhor Industries[(1989) 1  SCC  602  :
           1989 SCC (Tax) 98 : (1989) 1 SCR 382] or hydrolysate in  Ambalal
           Sarabhai [(1989) 4 SCC 112 : 1989 SCC (Tax) 584 : (1989)  3  SCR
           784] the finding in each case  on  the  basis  of  the  material
           before  the  Court  was  that  the  articles  in  question  were
           not marketable and were not known to the  market  as  such.  The
           ‘marketability’ is thus essentially a question  of  fact  to  be
           decided  on  the  facts  of  each  case.   There   can   be   no
           generalisation. The fact that the goods are not in fact marketed
           is of no relevance. So long as the goods  are  marketable,  they
           are goods for  the  purposes  of  Section  3.  It  is  also  not
           necessary  that  the  goods  in  question  should  be  generally
           available in the market. Even if the goods  are  available  from
           only one  source  or  from  a  specified  market,  it  makes  no
           difference so long as they are available for purchasers. Now, in
           the appeals before us, the fact that in Kerala these  poles  are
           manufactured by independent contractors who sell them to  Kerala
           State Electricity Board itself shows that such poles do  have  a
           market. Even if there is only one purchaser of  these  articles,
           it must still be said that there is a market for these articles.
           The marketability of articles does not depend upon the number of
           purchasers nor is the market confined to the territorial  limits
           of this country. The appellant's  own  case  before  the  excise
           authorities and the CEGAT was that these poles are  manufactured
           by independent contractors from whom  it  purchased  them.  This
           plea itself — though not pressed before  us  —  is  adequate  to
           demolish the case of the appellant. In our  opinion,  therefore,
           the conclusion arrived at by the Tribunal is unobjectionable.”

      11.   In Indian  Cable  Co.  Ltd.  v.  Collector  of  Central  Excise,
      Calcutta & Ors., (1994) 6 SCC 610, this Court held:-

           “10. We are of the view that the provisions of the  Act  mandate
           that a finding that the goods are marketable is  a  prerequisite
           or sine qua non for the levy of  duty. Section 3 of the  Act  is
           the charging section:

           “3. Duties, specified in the  Schedule  to  the  Central  Excise
           Tariff Act, 1985 to  be  levied.—  There  shall  be  levied  and
           collected in such manner as may be prescribed duties  of  excise
           on all excisable goods other than salt  which  are  produced  or
           manufactured in India and a duty on  salt  manufactured  in,  or
           imported by land into, any part of India as, and at  the  rates,
           set forth in the Schedule to the Central Excise Tariff Act, 1985
           ….”

           Section 2(d) defines  “excisable  goods”.  We  have  quoted  the
           definition in para 5 supra. The word ‘goods’ is not  defined  in
           the Act.

           11. After adverting to the aforesaid  definition  of  “excisable
           goods” and the meaning of the word ‘goods’, a Constitution Bench
           of the Supreme Court in Union of India v.Delhi Cloth and General
           Mills [AIR 1963 SC 791 :  1963  Supp  (1)  SCR  586]  stated  in
           paragraph 17 thus:

           “These definitions make it  clear  that  to  become  ‘goods’  an
           article must be  something  which  can ordinarily  come  to  the
           market       to        be        bought        and        sold.”
                (emphasis supplied)

           12. In  a  series  of  decisions,  this  Court  has  held   that
           ‘marketability’ is an essential  ingredient,  to  hold  that  an
           article is dutiable or exigible to duty of excise. The important
           decisions of this Court which have laid down  the  law  on  this
           aspect are the following: (1) Union of India v. Delhi Cloth  and
           General Mills Co. Ltd. [AIR 1963 SC 791 : 1963 Supp (1) SCR 586]
           (2) South Bihar Sugar Mills Ltd. v. Union of India [AIR 1968  SC
           922 : (1968) 3 SCR 21] (3) Bhor Industries Ltd. v. CCE [(1989) 1
           SCC    602    :    1989    SCC    (Tax)    98]     (4) Hindustan
           Polymers v. CCE [(1989) 4 SCC 323 : 1990 SCC (Tax) 118 :  (1989)
           43  ELT  165]  (5) CCE v. Ambalal   Sarabhai   Enterprises   (P)
           Ltd. [(1989) 4 SCC 112 : 1989 SCC (Tax) 584 : (1989) 43 ELT  214
           : JT (1989) 3 SC 341] (6) Union Carbide India  Ltd. v. Union  of
           India [(1986) 2 SCC 547 : 1986 SCC (Tax) 443 : (1986) 24 ELT 169
           :   JT    1986    SC    453]    (7) A.P.    State    Electricity
           Board v. CCE [(1994) 2 SCC 428 : JT (1994) 1 SC 545] .

           13. In   the   latest   decision   in A.P.   State   Electricity
           Board v. CCE, Hyderabad [(1994) 2 SCC 428 : JT (1994) 1 SC  545]
           , one of us (B.P. Jeevan  Reddy,  J.)  speaking  for  the  Bench
           succinctly stated the law thus at pages 549 and 550:

           “Marketability  is  an  essential  ingredient  in  order  to  be
           dutiable under the Schedule to the Act …. The ‘marketability’ is
           thus essentially a question of fact to be decided in  the  facts
           of each case. There can be no generalisation. The fact that  the
           goods are not in fact marketed is of no relevance.  So  long  as
           the goods were marketable, they are goods for  the  purposes  of
           Section 3. It is not also necessary that the goods  in  question
           should be generally available in the market. Even if  the  goods
           are available from only one source or from a  specified  market,
           it makes no  difference  so  long  as  they  are  available  for
           purchasers…. The marketability of articles does not depend  upon
           the number of purchasers nor  is  the  market  confined  to  the
           territorial limits of this country.”

                                                         (emphasis supplied)

           ‘Marketability’ is a decisive  test  for  dutiability.  It  only
           means ‘saleable’, or “suitable for sale”. It need not be in fact
           ‘marketed’. The article should be capable of being sold or being
           sold, to consumers in the market, as it is  —  without  anything
           more. The Appellate Tribunal has not adverted to the above vital
           aspects nor has it entered  a  finding  that  the  PVC  compound
           (granules)is a “marketable product” as understood  in  law.  The
           Appellate Tribunal was swayed by the fact that the conversion of
           PVC resin into PVC compound  by  the  process  employed  by  the
           appellants  amounts  to  ‘manufacture’  within  the  meaning  of
           Section 2(f) of the Act and that by itself will justify the levy
           of duty. In our view, this is a palpable error committed by  the
           Tribunal. In the absence  of  a  finding,  that  the  goods  are
           ‘marketable’ i.e. saleable or suitable for sale,  we  hold  that
           the order of the Appellate Tribunal is infirm. It should be  set
           aside and we hereby do so. We order a remit of the matter to the
           Appellate Tribunal to consider the appeal afresh and dispose  of
           the same in accordance with law. There shall be no order  as  to
           costs in this appeal.”




      12.    In  Moti  Laminates  (P)  Ltd.  v.  Collector  Central  Excise,
      Ahmadabad, (1995) 3 SCC page 23, this Court held that an  intermediate
      product, namely, resols, not being marketable would not be exigible to
      duty.  After referring to several earlier judgments, this Court held:

           “11. Although the duty of excise is on manufacture or production
           of the goods,  but  the  entire  concept  of  bringing  out  new
           commodity etc. is linked with marketability. An article does not
           become  goods  in  common  parlance  unless  by  production   or
           manufacture something new and different is brought out which can
           be bought and sold. In Union of India v. Delhi Cloth  &  General
           Mills Co. Ltd. [AIR 1963 SC 791] , a Constitution Bench of  this
           Court while construing the word ‘goods’ held as under:

           “These definitions make it  clear  that  to  become  ‘goods’  an
           article must be something  which  can  ordinarily  come  to  the
           market to be bought and sold.”

           Therefore, any goods to attract excise  duty  must  satisfy  the
           test of marketability. The Tariff Schedule by placing the  goods
           in specific and  general  category  does  not  alter  the  basic
           character of leviability. The duty is attracted not  because  an
           article is covered in any of the items or it falls in  residuary
           category but it must further have been produced or  manufactured
           and it is capable of being bought and sold.”



      13.   A large part of the arguments  ranged  around  the  decision  in
      Union of India (UOI) & Ors. v. Sonic Electrochem (P) Ltd. & Anr., 2002
      (145) E.L.T. 274.  In  this  judgment  the  question  that  arose  for
      decision was whether the plastic body of  electro  mosquito  repellent
      was excisable goods.  This Court held:

           “7…..The germane question is whether it has  marketability.  The
           plastic body is being manufactured to suit the  requirements  of
           the EMR of the respondents and is not available  in  the  market
           for being bought and sold. It is  not  a  standardised  item  or
           goods known and generally dealt with in the market. It is  being
           manufactured by the respondents for its captive consumption.  It
           is not a product known in the market with any commercial name.

           9. It may be noticed that  in  the  cases  referred  to  in  the
           passage, quoted above, the reasons for holding the articles 'not
           marketable' are different, however they are not  exhaustive.  It
           is  difficult  to  lay  down  a  precise   test   to   determine
           marketability of articles. 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 bought and sold. The fact that the
           product in question is generally not being bought  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(d)  of  the  said
           exemption notification.”




      14.   From this judgment,  Shri  Lakshmikumaran  wished  to  emphasise
      that, as in  the  said  judgment,  Transmission  Assemblies  were  not
      available in the market for being  bought  and  sold,  they  were  not
      excisable goods not being marketable.  As has correctly  been  pointed
      out by Mr. Gupta, learned senior counsel appearing on  behalf  of  the
      Revenue, what was held in this judgment is that the product should not
      be known in the market with any commercial name.  The moment a product
      is commercially known in the sense of fulfilling the practical test of
      being known to persons in the market who buy and  sell,  the  test  is
      satisfied. The fact that the product is generally not bought  or  sold
      or has no demand in the market is irrelevant.  It was held in the said
      judgment that the plastic body is not known as a commercially distinct
      product in the market and, therefore, if a manufacturer  is  asked  to
      replace  such  body,  it  would  not  be  replaceable  not   being   a
      commercially known product.

      15.   The facts in the present case show that Transmission  Assemblies
      of tractors are commercially known products as has  been  pointed  out
      above.  The fact that not a single sale of such Assembly has been made
      by the appellants is irrelevant.  This being the case, we are  of  the
      view that the Transmission Assembly of the tractor on the facts before
      us is clearly an intermediate product  which  is  a  distinct  product
      commercially known to the market as such.  On this  ground  therefore,
      the appellants are not liable to succeed.

      16.   However, the appellants are on firm ground when  they  say  that
      the extended period of limitation could not have been invoked  in  the
      present case.  In their reply to the show cause notice, the appellants
      stated:

           “20.2  It is submitted that the noticees have been manufacturing
           tractors right from 1965 onwards till  date.  The  manufacturing
           process undertaken by the noticees has been made  known  to  the
           Department  innumerable  number  of  times.   Consequent1y   the
           proposal to invoke the extended  period  of  limitation  in  the
           present case is incorrect and the  same  is  liable  to  be  set
           aside.

           20.3 The Noticee points out that just like the department raised
           the issue with regard to the IC engines  in  the  year  1994-95,
           similarly the department  is raising the issue in regard to  the
           transmission  assembly  by  the  present  Show   Cause   Notice.
           Therefore the dept. cannot allege any suppression  or  fraud  on
           the part of  Noticee.

           20.4 However, that is  not  to  say  that  there  has  been  any
           contumacious conduct or an intent to evade duty on the  part  of
           the noticees. In regard to  the  transmission  assemblies  which
           arise on the assembly line, if they are  used  in  the  dutiable
           tractors,  they  would  be  exempt  under  Captive   Consumption
           Exemption Notification No.67/95-CE dated 16.3.95.

           20.5 In regard to transmission assembly going into the  exempted
           tractor, the department has now raised the issue that  they  are
           dutiable  and  there  is  no  exemption  notification  for  such
           transmission assemblies.  Further,  that  the  Noticee  had  not
           claimed NIL rate of duty for transmission assemblies used within
           the factory for manufacture of tractors.

           20.6 The Noticee submits that they never  entertained  a  belief
           that  the  transmission   assembly   would   be   dutiable   and
           consequently, when such transmission  assemblies  arose  on  the
           assembly line, whether they go  into  the  exempted  tractor  or
           dutiable tractor, Transmission  ?Assembly  as  an  item  was  not
           mentioned separately in  the  classification  list.  This  shows
           their bona fides and does not lead to an  inference  that  there
           was  non-mention  of  the   transmission   assemblies   in   the
           classification list with ulterior motive.

           20.7   The  Noticees  submit  that  declarations  of  the   term
           "Transmission" appearing under Heading No.87.08 showing that the
           rate of duty applicable is 15% and the department knowing  fully
           well that tractors have been manufactured,  should  have  raised
           the issue regarding the transmission assembly  at  the  earliest
           and not by invoking the extended period as done in  the  present
           Show Cause Notice. The number of Transmission cleared on payment
           of duty to ECEL over the entire period  from  Jan.1996  to  May,
           1998 is very meagre as compared to the total number of  tractors
           (both dutiable and exempted) cleared during the  period.  It  is
           clear that  only  one  Transmission  Assembly  is  used  in  one
           tractor. Consequently, the Department knew  that  duty  was  not
           being paid on captively consumed Transmission Assemblies. Hence,
           extended period is not invocable. Thus, the department was fully
           aware  that  the  tractors  have  been   manufactured    and   a
           transmission assembly is made at the intermediate stage. Nothing
           prevented  the  department  from  raising  demands  within   the
           permissible shorter period of limitation under Section 11A.

           21. The department Cll11Wl plead ignorance that  they  were  not
           aware that in a tractor a transmission assembly  arises  at  the
           intermediate stage. Thus, the noticee entertained  a  bona  fide
           belief that since the transmission  assembly formed  a  part  of
           the  integrated assembly line for manufacturing tractors,  there
           was no  removal or exigibility of Transmission Assembly. Nothing
           prevented the department from raising  a  similar  issue  as  to
           dutiability of    Transmission  Assemblies  as  they  raised  in
           regard to I.C. Engines arising at the intermediate stage,  which
           was done in 1995.

           22. That in fact, the Show Cause Notice itself terms  the  issue
           of  manufacture  and   captive   consumption   of   transmission
           assemblies for tractors is the same as that  for  I.C.  Engines.
           However, knowing fully well  that  Transmission  Assembly  comes
           into existence at the intermediate stage, the  department  never
           raised the issue. This implies that in the present  proceedings,
           assuming without admitting duty is payable on  the  transmission
           assembly, the same was not being paid due to a bona fide  error.
           The same belief was entertained on the part of the  Noticees  as
           well  as  the  Department  during  the  relevant   period   that
           transmission assemblies going into the exempted tractor  do  not
           attract duty.”




      17.   Added to this, the appellants have also clearly stated that  not
      a single Transmission Assembly has in fact been sold by  them  in  the
      market.  On these facts, we are of the  opinion  that  the  appellants
      would fall within the test laid down in two judgments of  this  Court.
      In Padmini Products v. Collector of Central  Excise,  Bangalore,  1989
      (43) E.L.T. 195, this Court held:

           “8. Shri V. Lakshmi Kumaran, learned counsel for  the  appellant
           drew  our  attention  to  the   observations   of   this   Court
           in CCE v. Chemphar Drugs and Liniments, Hyderabad [(1989) 2  SCC
           127 : 1989 SCC (Tax) 245] where at p. 131 of  the  report,  this
           Court observed that in order to sustain an order of the Tribunal
           beyond a period of six months and up to a period of  five  years
           in view of the proviso to sub-section (1) of Section 11-A of the
           Act, it had to be established that the duty of  excise  had  not
           been  levied  or  paid  or  short-levied   or   short-paid,   or
           erroneously refunded by reasons of either fraud or collusion  or
           willful misstatement or suppression of facts or contravention of
           any provision of the Act or Rules made thereunder,  with  intent
           to evade payment of duty. It was observed  by  this  Court  that
           something positive other than mere inaction or  failure  on  the
           part of the manufacturer or producer of conscious or  deliberate
           withholding of information when the manufacturer knew otherwise,
           is required to be established before  it  is  saddled  with  any
           liability  beyond  the  period  of  six  months.  Whether  in  a
           particular set of facts and circumstances there was any fraud or
           collusion or wilful misstatement or suppression or contravention
           of any provision of any Act, is a  question  of  fact  depending
           upon the facts and circumstances of a particular case.

           …….As mentioned hereinbefore, mere failure or negligence on  the
           part of the producer or manufacturer either not to  take  out  a
           licence in case where there was scope for doubt  as  to  whether
           licence was required to be taken out or where  there  was  scope
           for doubt whether goods were dutiable or not, would not  attract
           Section 11-A of the Act. In the facts and circumstances of  this
           case, there were materials, as indicated to suggest  that  there
           was scope for confusion and the  appellant  believing  that  the
           goods came within the purview of the concept of handicrafts  and
           as such were exempt. If there was scope for  such  a  belief  or
           opinion, then failure either to take out a  licence  or  to  pay
           duty on that behalf, when there was no  contrary  evidence  that
           the producer or the manufacturer knew these  were  excisable  or
           required to be licensed, would not attract the penal  provisions
           of Section 11-A of the Act. If the facts are otherwise, then the
           position would be different.”




      18.   Similarly in Continental Foundation  Joint  Venture  Holding  v.
      Collector of Central Excise, Chandigarh- I, (2007) 10  SCC  337,  this
      Court  held:

           “14. As far as fraud and collusion are concerned, it is  evident
           that the intent to evade duty is built into these very words. So
           far as misstatement or suppression of facts are concerned,  they
           are clearly qualified by the word “wilful”, preceding the  words
           “misstatement or suppression of facts” which means  with  intent
           to evade duty.The next set of words “contravention of any of the
           provisions of this Act or Rules”  are  again  qualified  by  the
           immediately following words “with intent  to  evade  payment  of
           duty”. Therefore, there cannot be suppression or misstatement of
           fact, which is not  wilful  and  yet  constitute  a  permissible
           ground  for  the  purpose  of  the  proviso  to  Section   11-A.
           Misstatement of fact must be wilful.

           13. Factual position goes to show that the Revenue relied on the
           Circulars dated 23-5-1997 and 19-12-1997. The Circular dated 6-1-
           1998  is  the  one  on  which  the  appellant  places  reliance.
           Undisputedly, view expressed by cegat in Continental  Foundation
           Joint Venture case [Continental Foundation Joint Venture v. CCE,
           (2002) 150 ELT 216 (Tri-Del)] was held to be not  correct  in  a
           subsequent larger Bench judgment. It is, therefore,  clear  that
           there was scope for entertaining doubt  about  the  view  to  be
           taken. The Tribunal apparently has not considered these  aspects
           correctly. Contrary to the factual position, cegat has held that
           no plea was taken  about  there  being  no  intention  to  evade
           payment of duty as the same was to be reimbursed by  the  buyer.
           In fact such a plea was  clearly  taken.  The  factual  scenario
           clearly goes to show  that  there  was  scope  for  entertaining
           doubt, and taking a particular stand which rules out application
           of Section 11-A of the Act.

           12. The expression “suppression” has been used in the proviso to
           Section 11-A of the Act accompanied  by  very  strong  words  as
           “fraud” or “collusion”  and,  therefore,  has  to  be  construed
           strictly. Mere omission  to  give  correct  information  is  not
           suppression  of  facts  unless  it  was   deliberate   to   stop
           (sic evade) the payment of duty. Suppression  means  failure  to
           disclose full information with the intent to  evade  payment  of
           duty. When the facts are known to both the parties, omission  by
           one party to do what he might have  done  would  not  render  it
           suppression. When the Revenue invokes  the  extended  period  of
           limitation under Section 11-A the burden  is  cast  upon  it  to
           prove suppression of fact.  An  incorrect  statement  cannot  be
           equated with a wilful misstatement. The latter implies making of
           an incorrect statement with the knowledge that the statement was
           not correct.”




      19.   Judged by this test, it is clear that on facts  in  the  present
      case there was no suppression on the part of the  appellants  nor  was
      there any willful attempt to evade duty.  As stated by the  appellant,
      the appellant has  been  manufacturing  tractors  from  1965  onwards.
      There has never been any change in the manufacturing process.  In  the
      year 1994-95, IC engines were stated  by  the  department  to  contain
      Transmission Assemblies, which were dutiable.  On  receiving  a  reply
      from the appellant, the department did not levy  any  excise  duty  on
      such Transmission Assemblies.  The  show-cause  notice  itself  stated
      that the issue of manufacture and captive consumption of  Transmission
      Assemblies for tractors is the same as that  for  IC  engines.   These
      facts, coupled with the fact that not a single  Transmission  Assembly
      of tractors manufactured by the appellant had been sold makes it clear
      that there was no suppression or any intent to evade  excise  duty  in
      the present case. We feel that the  show  cause  notice  needs  to  be
      quashed on this ground alone.  Accordingly, the appeal is allowed, and
      the judgment dated 27.5.2004 passed by CESTAT is set aside.




      Civil Appeal Nos.9469-9470 of 2010

      20.   This case has similar facts.  We are concerned with  the  period
      1.4.1997 to 31.5.1998.  The show cause notice in this case was  issued
      on 1.5.2002, in which the extended period of limitation was invoked as
      follows:-

           “M/s. TAFE have filed the declaration under Rule 173B of Central
           Excise  Rules,  1944,  during  the  year  2000-2001,   for   the
           manufacture of product viz., Transmission Assembly falling under
           Chapter Sub-heading No.8708.00, and cleared the said product  on
           payment of duty under Invoice No.1120969 dated 21.6.2000.  Never
           before in the past M/s. TAFE have declared  this  product  along
           with other factory finished products for which duty was paid  by
           them.  Hence, necessary verification was conducted in  order  to
           know whether  any  such  sub-assemblies  were  manufactured  and
           cleared by the assessee for use in the exempted tractors.

           4.    M/s. TAFE have manufactured the sub-assemblies  as  listed
           in the Annexure-I and Annexure-II for  the  tractors  Model  No.
           TAFE 25 and TAFE 30 inside the factory for captive  use  in  the
           production of tractors.  The details of process  of  manufacture
           of such sub-assemblies are explained in  Annexure-III.   As  per
           Clause (ii) to Notification No.67/95 dated 16-3-1995 all  inputs
           specified in column 1 of the  Table  in  the  said  Notification
           which also includes inputs falling under Chapter Heading  87  of
           Central Excise Tariff Act, 1985, manufactured in a  factory  and
           used within the factory of production in or in relation  to  the
           manufacture of the final products are exempt from the  whole  of
           the excise duty due  thereon,  provided  the  final  product  is
           chargeable to duty.  As per this  notification,  M/s  TAFE  have
           paid duty on all the goods  falling  under  Chapter  Sub-Heading
           87.08, used in the manufacture of Tractors  of  engine  capacity
           less than 1800cc which are exempted, except  the  sub-assemblies
           manufactured and used in the exempted tractors.   Therefore,  it
           appears that M/s TAFE are liable to pay duty  on  all  the  sub-
           assemblies manufactured (as per Annexure-I and II), and used  in
           the Tractors which are exempt for the period from April, 1997 to
           May, 1998.

           5.     M/s.  TAFE  have  not  brought  to  the  notice  of   the
           manufacture  of  sub-assemblies  to  the  Department  with   the
           intention to evade payment of excise duty.  They have  willfully
           suppressed the fact of the  manufacture  of  the  sub-assemblies
           from the knowledge  of  the  Department  and  cleared  the  same
           without payment of duty for use in the manufacture of  Tractors,
           which are  exempted.   It  can  be  seen  from  the  process  of
           manufacture that the making of the  independent,  sub-assemblies
           are inevitable in the Tractor build.  But,  M/s  TAFE  chose  to
           declare only the  parts  constituting  these  sub-assemblies  as
           factory finished items  and  not  sub-assembly.   Whether  these
           factory finished items and bought  out,  items,  when  assembled
           will form a sub-assembly has not been declared  by  them.   M/s.
           TAFE have chosen not to declare the sub-assemblies willfully  in
           order to evade payment of duty.”




      21.   In the reply to the show cause notice,  the  respondents  stated
      that they had never sold transmission assemblies  in  the  market  and
      that their price list does not carry a list price for this item.   The
      only removal ever made was during the warranty period of  one  tractor
      and this one removal does  not  justify  the  fact  that  transmission
      assemblies have  a  market.   It  was  further  stated  that  had  the
      respondents known that transmission assemblies  were  excisable,  they
      would have claimed exemption  as  the  finished  product  was  exempt.
      Further, Transmission Assembly is only recognized as an Assembly  line
      intermediate  product  and  not  as  a  product  in  itself  which  is
      separately identifiable as in the case of  other  Assemblies  such  as
      axel  shaft,  engine,  gear  parts,  instrument  panels,   etc.    The
      difference in this case is that vide  an  order  dated  30.4.2004  the
      authorities found in favour of the respondents on merits holding  that
      there was neither manufacture nor marketability  of  the  Transmission
      Assemblies in question.  This was confirmed in appeal by CESTAT by the
      impugned judgment dated 12.11.2009.

      22.   In view of what is stated in Civil Appeal No.6561 of  2004,  the
      part of the order in original and the CESTAT order on merits  have  to
      be set aside.  However, for the self-same reasons as are contained  in
      Civil Appeal No.6561 of 2004, we hold  that  the  extended  period  of
      limitation is not  available  as  we  are  satisfied  that  the  reply
      extracted above of the respondent shows that the respondent bona  fide
      believed that Transmission  Assemblies  were  not  dutiable.   In  the
      circumstances, the appeals of the revenue  shall  stand  dismissed  on
      this ground.

      C.A. No.457 of 2006

      23.   The facts in this appeal are as follows. The period involved  is
      April, 1996 to May, 1998 and the show cause notice is dated  1.5.2001.
      As the impugned judgment in this case by  CESTAT  merely  follows  the
      Escorts case i.e. Civil Appeal No.6561  of  2004,  we  hold  that  the
      finding of the authorities on merits is  correct.   However,  in  this
      case also the extended period of limitation is not  available  to  the
      revenue.

      24.   In the order dated 26.12.2001, the Commissioner stated:-

           “In the present inquiry  which  was  undertaken  by  the  proper
           officer, it was found that the transmission assembly or  chassis
           assembly which is classifiable under Sub-heading  87.08  of  the
           1st Schedule to the Central Excise Act was not declared  by  the
           noticee in the classification list.  Therefore, their plea  that
           they  have  declared  the  chassis  thereof   does   not   cover
           transmission assembly or chassis assembly.  They  themselves  in
           their reply have admitted that the chassis  is  the  main  frame
           that supports the body and the engine has to be so framed as  to
           receive, hold and fasten an engine and other components  of  the
           tractors (Para 14 of the reply).  Thus, transmission assembly is
           not the chassis and since the noticee have failed to declare the
           transmission assembly/ chassis assembly, the suppression of fact
           is clear.

                 The intention to evade duty is clear from the statement of
           Shri P.C. Kale dated 12.04.2001 as the noticee was knowing  that
           duty is required to be paid on  the  goods  which  go  into  the
           assembly of the tractor of engine capacity less  than  1800  CC.
           As such tractors were  exempt  from  duty  during  the  relevant
           period.  Knowing this fact  very  well  and  not  declaring  the
           transmission assembly or chassis assembly in the  classification
           declaration and clearing  such  transmission  assembly/  chassis
           assembly  without  payment  of  duty  without  recording   their
           production in the statutory records and without filing the RT-12
           returns for the production and clearance  of  such  transmission
           assembly/ chassis assembly clearly  established  that  this  was
           done with an intention to evade payment of duty.”




      25.   We find that in successive declarations made by the assessee  in
      this case starting from 16.3.1995 the assessee had declared not merely
      the tractor but the chassis therefor.  The assessee bonafide  believed
      that the declaration of the chassis would suffice as according to them
      Transmission Assemblies were not  taxable  goods.   The  intention  to
      evade duty is according to the Commissioner made out from a  statement
      made by Shri P.C. Kale dated 12.4.2001.  It is pointed out by  learned
      counsel appearing on behalf of the appellant that in the memorandum of
      appeal filed against the order in original, Shri P.C. Kale  was  never
      in the employment of the appellant during the relevant  period  as  he
      joined the appellant only in July, 2000.  Apart from this, it is  also
      pointed out that the appellant is a public sector company governed  by
      a Board of Directors consisting of IAS Officers.  Be that as  it  may,
      we are satisfied that there was no attempt to evade excise duty and in
      this case also the show  cause  notice  being  beyond  the  period  of
      limitation of one year would have to be quashed on  this  ground.   On
      this ground alone, therefore, the impugned judgment dated 3.10.2005 is
      set aside.  The appeal is allowed accordingly.




                                        ……………………….J.
                                        (A.K. Sikri)




                                        ……………………….J.
                                        (R.F. Nariman)
      New Delhi;
      April 29, 2015.

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