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PETITIONER: NIRLON SYNTHETIC FIBRES &CHEMICALS LIMITED

       Vs.

RESPONDENT: THE COLLECTOR OF CENTRAL EXCISE

DATE OF JUDGMENT:       13/08/1996

BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) MAJMUDAR S.B. (J)

CITATION:  1996 SCALE  (5)833

ACT:

HEADNOTE:

JUDGMENT:                             WITH         (Civil Appeal Nos. 3262-66/88 & 1587-90/90)                       J U D G M E N T BHARUCHA, J.      The-appellants  manufacture  nylon  yarn  using  a  raw material known as caprolactam. The raw material is subjected to polymerisation.  This  is  a  reversible  process.  After polymerisation the  resultant poly-caprolactam  is  spun  to obtain nylon  yarn. Waste  in solid  form  containing  poly- caprolactam is  obtained at various stages of the process of manufacture. To  fully use  caprolactam, which  is expensive and duty  paid, the  appellants have  installed equipment by which caprolactam is recovered from the aforementioned waste and re-cycled  into  the  process.  The  Excise  authorities sought to  treat the  process of  separation of  caprolactam from the  waste as an independent manufacturing process, and subjected it to duty. The claim of the appellants for refund of such  duty was  rejected. The  Collector (Appeals) upheld the rejection,  as did  the Customs, Excise & Gold (Control) Appellate Tribunal. Hence this appeal.      Caprolactam in  flakes is  used as  the original    raw material. The  caprolactam that  is recovered from the waste as aforestated  is in  molten form  and,  according  to  the appellants, not  saleable commodity.  The  Tribunal  in  the principal judgment  (in C.A. No.4173-74 of 1984) came to the conclusion that  caprolactam was manufactured when recovered from waste.  It  observed  that  the  contention  that  "the recovered caprolactam  is not bought and sold, even if true, cannot  negate  manufacture.  When  the  tariff  itself  had specified ‘caprolactam’  as an assessable product, it cannot be of any consequence that once it is manufactured it is not bought and  sold in  the market."  In the subsequent matters under appeal, the tribunal followed this judgment.      Learned counsel for the appellant drew our attention to the subsequent  judgments of the Tribunal in Jagatjit Cotton textile Mills  Ltd. vs.  Collector of  Central Excise,  1990

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(50) E.L.T.  379. &  L.M.L.Ltd,  vs.  Collector  of  Central Excise, 1992(59)  E.L.T. 82.  In both cases the Tribunal was concerned with  facts indentical  to those  involved in  the appeals  before   us  and,   very  rightly,  recognised  the importance of  the marketability  of  the  product  for  the purpose of  levy of  excise duty  The order of the Collector which was  in appeal  before the  Tribunal in  the  case  of Jagatjit  Cotton   Textile  Mils   Ltd.  had   followed  the Tribunal’s decision  Which is  in appeal  before us.  In the case  of  L.M.L.  Ltd.  counsel  on  behalf  of  the  Excise authorities had  cited to the Tribunal its decision which is in appeal before us.      In the  case of  Jagatjit Cotton Textile Mills Ltd. the Tribunal said:           "We    gave     our    anxious      consideration  to   the   arguments      advanced on  both sides and perused      the records. It is evident from the      record that  both  the  authorities      below have  proceeded to  determine      the  excisability  of  the  product      based on  process of  manufacturing      activity, without  considering  the      important point about marketability      of the  product in  determining the      goods for  the purpose  of levy  of      excise duty.  The material which is      sufficient  for   the  purpose   of      holding that there is manufacturing      activity   and   emergence   of   a      separate product are not sufficient      for the  purpose of  coming to  the      conclusion about  the marketability      of the  product. The Department has      not brought  on record any evidence      to  show   that  these  goods  were      either sold or  marketable as such.      On the  other hand  the  appellants      have  taken  this  stand  from  the      beginning and  in support  pf their      contention   they   have   produced      certificate from  the Gujarat State      Fertilizer Corporation  who is sole      manufacturers  of   caprolactum  to      show  that  Caprolactum  in  molten      form   is   not   marketable.   The      important  piece  of  evidence  was      neither    considered     by    the      Department  nor  rebutted.  Supreme      Court has  categorically held  that      marketability of  the product is an      essential ingredient in order to be      dutiable under  the Excise  Law, in      the Bhor industries Limited (supra)      and   further    same   view    was      reaffirmed by  the Supreme Court in      the case  of Collector  of  Central      Excise   Vs.    Ambalal    Sarabhai      Enterprises, reported  in 1989 (43)      ELT  214  (S.C.),  wherein  it  was      observed that test of marketability      should be satisfied even in respect      of   transient    item   which   is      captively    consumed     in    the      manufacture   of   other   finished

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    product and  in particular  it held      that marketability  is an essential      ingredient in  order to be dutiable      under the  Schedule to  the Central      Excise Tariff  Act. Simply  because      certain articles  fall  within  the      Schedule it  would not  be dutiable      under the  Excise Law  if the  said      article is  not goods  known to the      market. It  has also been held that      though   actual    sale   is    not      necessary,  the  evidence  must  be      produced by the Department that the      goods in  fact are capable of being      marketed. The  Department  has  not      adduced any  such evidence  in this      case.  Under  these  circumstances,      following the ratio of the decision      of the Apex Court, we have no other      alternative except to hold that the      goods in question are not liable to      excise duty."      In the  case of  L.M.L. Ltd., the Tribunal followed its order in  the case  of Jagatjit.  In both  cases it was held that the  caprolactam that  was recovered from waste was not liable to excise duty.      Learned counsel  for the  appellants submitted that the respondents had  rested content on the aspect of manufacture of the  recovered caprolactam and had led no evidence on the aspect of  its saleability.  It was  not enough  that  there should be  manufacture and  the manufactured  product should find mention  in the Excise tariff. It was necessary also to establish marketability  and this  not having  been done, no Excise duty could be levied upon the recovered caprolactam.      Learned counsel  for the  Excise authorities  submitted that since  the product was mentioned in the Schedule and it was used  as raw  material, it should be assumed that it was marketable and the onus to rebut such assumption should rest on the  appellants. In his submission, the onus had not been discharged.  He  submitted  that  the  appellants  used  the recovered caprolactam  as a  raw material in the manufacture of nylon  yarn, as  did Jagatjit  & L.M.L., and there was no reason shown why the one manufacturer could not transfer the recovered caprolactam  to  the  other.  In  his  submission, therefore, the  matter should  be remanded  for ascertaining the factual position.      Learned  counsel  for  the  respondents  had  not  been instructed about  the Tribunal’s  decisions in  the Jagatjit and L.M.L.  cases and  could not refute the submissions that they had been accepted by the Excise authorities.      The  Tribunal   in  the  two  subsequent  decisions  in Jagatjit  &  L.M.L  found  as  a  fact  that  the  recovered caprolactam was  not a  saleable commodity upon the basis of the assessee’s  evidence  and  the  failure  of  the  Excise authorities to  prove the  contrary. The  Excise authorities having made  no attempt  to disprove the evidence led by the assessees  in  those  matters  and  this  and  establish  by evidence of  their own  that the  recovered caprolactam  was marketable, there  is no reason why they should now be given a second opportunity to do so by an order of remand.      For  these   reasons,  the  appeals  are  allowed.  The judgments and  orders of  the Tribunal  under appeal are set aside and  it is  held that the recovered caprolactam is not excisable to excise duty.      There shall be no order as to costs.

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