Full Judgment Text
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CASE NO.:
Appeal (civil) 430 of 2000
PETITIONER:
M/s Hindustan Zinc Limited
RESPONDENT:
Commissioner of Central Excise Jaipur.
DATE OF JUDGMENT: 24/02/2005
BENCH:
S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
The short question which arises for determination in this
civil appeal filed by the assessee under section 35L(b) of the
Central Excise Act, 1944 is \026 whether the intermediate product
produced in the manufacture of zinc in the assessee’s factory is
marketable and if it is marketable then whether the product is to
be classified under tariff heading 28.43.
Assessee is a fully owned Government of India
undertaking in the business of manufacturing zinc in its factory.
In the course of extraction of zinc from zinc-silver concentrate,
a mixture or a combination of zinc chloride, silver chloride,
lead and other material emerges from which, by further
treatment, sulphates of all other material are filtered out leaving
behind the residue of silver chloride.
According to the department, silver chloride thus
produced in the factory of the assessee is an assessable
commodity liable to duty under tariff item 2843.10. According
to the department, the said product is in the form of white paste
and that the assessee opts for the slurry form of silver chloride
as it is convenient to extract silver and separate other residues
of metals subsequent to the stage of emergence of silver
chloride.
According to the assessee, silver chloride is the residue
of the treatment whereby sulphates of other materials are
filtered out and, therefore, silver chloride can at best be referred
to as an intermediate process not amounting to excisable goods;
that such a product has no market; that there is no company to
buy such a product; that the silver chloride sold at Rs.9600 per
kg. at the relevant time was a different product made from
silver; that silver chloride which is sold in the market is sold in
the special packing and that the content level of silver and the
purity level of the silver chloride sold in the market is different
from silver chloride produced in the factory of the assessee
which has silver content of only 50% to 53%. According to the
assessee, the product which emerges in its factory is in the form
of slurry and not in the powder form and such a slurry has no
market and that it is not capable of being used in photography,
ceramics etc. to which silver chloride sold in the market is
capable of. According to the assessee, it is a residue and not a
compound. According to the assessee, silver chloride sold in
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the market has purity of 99% and its silver content is 75%.
According to the assessee, the silver content in the silver
chloride produced in its factory is only 53% and that it would
be very costly to purify such silver chloride to compete with
silver chloride sold in the market. According to the assessee,
the burden was on the department to prove that the silver
chloride which is the residue of the treatment constituted
"goods" in terms of manufacture and marketability.
Excise duty is levied under section 3 on goods
manufactured or produced in India. Thus, before excise duty is
levied on an item, even if it is mentioned in the tariff, two
conditions have to be cumulatively satisfied, namely, that the
process by which an item is obtained is a process of
manufacture and that the item so obtained is commercially
marketable and bought and sold in the market or known to be
so in the market. This legal position has been laid down by this
Court in a number of judgments including Moti Laminates Pvt.
Ltd. v. Collector of Central Excise, Ahmedabad reported in
[1995 (76) ELT 241], Union of India v. Delhi Cloth & General
Mills Co. Ltd. reported in [1997 (92) ELT 315] and Cadila
Laboratories Pvt. Ltd. v. Commissioner of Central Excise,
Vadodara reported in [2003 (152) ELT 262].
Applying the above twin tests to the facts of this case, we
find from the flow-chart, which has two sides, namely, zinc line
and silver line, that at the stage of "Flotation", there is a
separation of sulphides of silver and zinc from zinc ferrites, to
avoid loss of silver in jarosite waste solids. [See: Hindustan
Zinc Ltd. v. Collector of Central Excise reported in [1990 (45)
ELT 155 at page 157]. In fact, the flow-chart indicates
installation of silver recovery tank for recovery of silver.
Further, silver chloride so obtained is essentially a chemically
defined compound classifiable under chapter heading 28.43. In
the circumstances, the first test of "manufacture" is satisfied.
At this stage, it, therefore, becomes necessary to see what
is the product of the assessee and what is the product in the
market. At the outset, it may be pointed out that both the
products are silver chloride. Both exist in the form of white
pasty mass. However, the question which arises for
determination is on marketability. According to the assessee,
silver chloride as a residue of the treatment of filtration, having
silver content of 50% to 53%, has no market. According to the
assessee, silver chloride which is sold in the market emerges
from pure silver and, therefore, the content of silver in the silver
chloride, which is sold in the market, is 75% and the purity
level of 99%.
In the case of Cadila Laboratories Pvt. Ltd.(supra), the
Division Bench of this Court, speaking through one of us
[Variava, J.] has held:
"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.
12. It is an admitted position that the department
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has (1) made no efforts to ascertain whether any of
the intermediate products are available in the
market; (2) even if available whether or not
products available in the market are the same as
that produced by the Appellant; (3) none of the
intermediate products manufactured by the
Appellants were got analysed by a chemical
analyser. It is admitted that the Report of the
chemical analyser, relied on, was based only on the
write up given by the Appellant. In his cross-
examination the chemical analyser admits that
there was no facility available in his laboratory to
carry out tests to establish the identity of the
products. He also admits that, except for 3-4
Diamino Benzophenone there was no reference
available, regarding other intermediate products, in
the technical literature available in the laboratory.
13. At this stage, it must be mentioned that
Customs Notification relied upon does not refer to
all the products. Reliance on such a Notification
may be relevant and may show marketability if the
goods are identical. However, where a question is
raised that goods available in the market are
finished or refined product whereas what is
manufactured is in a crude and unrefined form, the
burden would be on the department to show that
what is available in the market is the same as the
goods manufactured. In this case, no attempt is
made to find out whether any of these products are
bought or sold in the market and more importantly
it has not been verified, by drawing samples of
Appellants’ products and getting them chemically
analysed, whether their claim is false. It has not
been ascertained whether or not Appellants’
products are in crude and unstable form and/or
whether these products had a shelf life of only a
few hours. Mere fact that they are stored in tins or
cans for a short period would not ipso facto lead to
the conclusion that the products were stable.
14. It is admitted that the Appellants had bought
one of the products from the market at one stage.
However, they have explained that what was
bought was in a purer form and the product they
manufacture does not have that purity. It was for
the department to check this. The department has
chosen not to do so. The burden being on the
department it will have to be held that they have
not discharged that burden. The order passed only
on the basis that these goods "can conceivably be
sold" cannot be sustained in the light of the law
which has been set out hereinabove."
Thus, marketability is essentially a question of fact. In
the show-cause notice it is stated as follows:
"As per market enquiry conducted revealed that
silver chloride (75%) was being sold ex-factory @
Rs.1000/- per 100 Gms. i.e. Rs.10,000/- per Kg.
The silver chloride manufactured by M/s
Hindustan Zinc Ltd. Debari containing 53.7%
silver its assessable value of the comparable goods
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under the provisions of Rule 6(b)(i) of Central
Excise (Valuation) Rules, 1975 works out to be
Rs.7160/- per Kg."
This seems to suggest that some market enquiry was
made. However, it could not be shown to us what that market
enquiry was. The above statement also shows that silver
chloride sold in the market had 75% silver content. In the
present case, the department has made no efforts to ascertain
whether silver chloride emerging from the treatment adopted in
the assessee’s factory, having 50% to 53% silver content, had a
market. Mathematical ratio between total quantity of silver
chloride and silver content cannot establish marketability. The
burden was on the department to prove such marketability. In
the circumstances, on facts, we hold that the department has
failed to prove the test of marketability.
Before concluding, we may point out that since 1990,
when the case of Hindustan Zinc Ltd. (supra) came to be
decided, the question of excisability of silver chloride has been
cropping up and yet till this day no steps have been taken by the
department to go to the market and collect proper evidence of
marketability. In most of the matters, we find lethargy and
reluctance on the part of the department to collect evidence on
marketability and even in cases where market enquiry is made
it is made in a perfunctory manner. Consequently, despite the
department having good case on classification, we are
constrained to allow the appeal of the assessee on marketability
for want of evidence.
For the aforestated reasons, the appeal stands allowed;
the impugned judgments and orders of the tribunal dated
24.8.1999 in Appeal No.E/223/98-C and of the Commissioner
dated 28/29.10.1997 in Order-in-Original No.9/CE/JP-II/97 are
set aside, with no order as to costs.
During the pendency of the civil appeal before this Court,
the department has recovered the full duty with interest of about
Rs.1.13 crore. Since the appeal of the assessee stands allowed,
we hereby order the department to return the collected
amount(s) with interest, if any, in accordance with law.