Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2377 OF 2002

Bata India Ltd.             …. Appellant(s)

Versus

Commissioner of Central Excise, New Delhi         ….Respondent(s)

J U D G M E N T

K.S. RADHAKRISHNAN, J.

1. The  question  that  arises  for  consideration  in  this  appeal  is  

whether  unvulcanised  sandwiched  fabric  assembly  produced  in  the  

Assessee’s factory and captively consumed can be termed as “goods” and  

can be classified  as “rubberized cotton fabrics” falling under  sub-heading  

number 5905.10 of the schedule to the Central Excise Tariff Act, 1985.

2. The  above  question  came  up  for  consideration  before  the  

Customs,  Excise  and  Gold  (Control)  Appellate  Tribunal  (for  short  ‘the  

Tribunal).  The Member (Judicial) took the view that the product would not

attract duty unless it is established that the goods in question is marketable  

or capable of being marketed as a distinct product and that the Revenue  

has failed to discharge the burden to prove the marketability and dutiability  

of the intermediate product in the manufacture of rubber/canvas foot wear.  

The Member(Technical), however, disagreed with that finding and held that  

the Revenue has discharged its burden and took the view that the goods in  

question attracts duty.

3. In  view  of  the  difference  of  opinions  expressed  by  the  two  

members,  the matter  was placed before a third member who concurred  

with the view expressed by the Member (Technical) and a final order was  

passed on the  above issue by the  Tribunal  on  24.12.2001 holding  that  

double textured rubberized fabric / unvulcanised sandwiched fabric is an  

excisable product liable to central excise duty.  No opinion was expressed  

by  any  of  the  members  on  the  question  of  exemption,  applicability  of  

notification and the quantum of penalty imposed and those issues were left  

to be considered when the appeal is finally posted for hearing.

4. Aggrieved by the findings of the Tribunal dated 24.12.2001 the  

assessee has come up before us with this appeal.

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5. The Assessee is a well known manufacturer of foot wear.  For  

the manufacture of foot wear, various raw materials are purchased by the  

assessee from the market  and /  or  from their  respective  manufacturers  

such as fabrics, rubbers, chemicals, solvents etc.  During the process of  

manufacturing of foot wear various chemicals / rubbers / solvents etc., are  

mixed together and a thin layer of such mixed materials is sandwiched in  

between two sheets of textile fabric,  in running length,  through a  three  

bowl calendering machine.  The product is later cut and stitched according  

to the assessee’s requirements and in-process materials are used as shoe-

uppers in the foot wear.  Such fabrics are also at times sent to job workers  

for  stitching  purposes  only  and  the  fabric  sandwiched  with  the  mixed  

materials  are  inputs  of  the  intermediate  stage  during  the  course  of  

manufacture of footwear.   Vulcanisation of the foot wear takes place only  

after completing the entire process and then it would be a finished product  

as a footwear,  made available  in  the market  and acquires commercial  

identity and turns out to be a commercially known product.  

6.  The Collector of Central Excise (in short the Collector)  noticed  

that during the manufacture of foot wear the assessee manufactures an  

excisable product  called double textured fabric  which is further  used as  

upper material  in the manufacture of foot wear and this double textured  

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fabric  is  nothing  but  rubberized,  water  proof  fabric  with  a  thin  layer  of  

rubber sandwiched between two sheets of cotton fabric in running length.  

As a result of that process a double textured fabric emerges as a distinct  

product  with specific properties and character  other than that  of  original  

fabric used as input which is known in commercial trade parlance as double  

textured fabric  which is used in considerable quantities for  making rain-

coats, holdalls, hand bags etc.   

7. The Collector therefore, came to the conclusion that this double  

textured fabrics are marketable products  fulfilling the requirement  of  the  

definition of excisable goods as per Section2(d) of the Central Excise  1944  

(in short the Act)  attracting the levy of central excise duty under the Act.  

The Collector then issued a show cause notice dated 29.03.1995 to the  

assessee stating it had manufactured and cleared double textured fabric  

valued at Rs.7,96,43,247/- for captive consumption in the manufacture of  

shoe-uppers  used  in  2,51,29,646  numbers  of  exempted  canvas  shoes  

without  payment  of  duty  amounting  to  Rs.88,80,782/-  during  the  period  

from  01.04.1990  to  31.08.1994  without  the  cover  of  excise  gate  pass,  

without filing classification list, price list without accounting for production  

and clearance in the statutory central excise records and without observing  

other formalities prescribed under the Central  Excise Rules,  1944.  The  

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assessee  was  directed  to  show  cause  why  the  above  amount  be  not  

recovered from them under Rule 9(2) of the Central Excise Rules, 1944  

read with Section 11(A) of the Act and also to show cause why penal action  

be not taken against them under Rule 173 Q(1) of the Central Excise Rule,  

1944. Yet another show cause notice dated 30.03.1995 also was issued to  

the assessee claiming duty amounting to Rs. 5,95,181 during the period  

from 01.09.1994 to 06.12.1994 stating that the assessee had failed to pay  

duty  for  the  rubberized  fabric  manufactured  and  cleared  for  captive  

consumption for the above period as well and to show cause why penal  

action be not initiated under Rule 173Q(1) of Rules 1944.

8. The  assessee  filed  detailed  objections  to  the  show  cause  

notices on 22.09.1995 and 19.02.1996 respectively,  and the matter was  

heard by the Commissioner, Central Excise who confirmed the demands  

made in both the show cause notices and a total amount of Rs.89,77,064  

was demanded from the assessee.  The Commissioner of Central Excise  

also imposed a penalty of Rupees 1 crore on the assessee under Section  

173  Q(1)  of  the  Central  Excise  Rules,  1944.   Aggrieved  by  the  above  

mentioned order the assessee approached the Tribunal and the Tribunal by  

a majority order held that double textured rubberized fabrics / vulcanized  

stitched fabric is an excisable product attracting duty  the correctness or  

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otherwise of  that  order  is  the issue that  has come up for  consideration  

before us.

9. Shri  Ravindra  Narain,  learned  counsel  appearing  for  the  

assessee  submitted  that  the  Tribunal  has  committed  a  grave  error  in  

holding that the product manufactured by the assessee for their  captive  

consumption is liable to duty under the Act.  He submitted that the Tribunal  

has not properly appreciated the manufacturing process undertaken by the  

assessee  and  the  question  whether  that  intermediate  product  has  

commercial identity or marketability.  Learned counsel also submitted that  

the Revenue has not discharged their burden of proof to establish that the  

product is excisable and marketable and capable of being marketed and  

that the Revenue has only produced three documents viz., the test report  

dated  20.10.1994,  the  SSB  hand  book  of  rubber  products  and  the  

statement of Superintendent (Supply and Transportation) of the assessee’s  

company  which  are  insufficient  to  hold  that  product  is  marketable  or  

capable of being marketed.  On the other hand assessee has produced  

sufficient materials to establish that the material used by the assessee is  

not marketable and has no commercial identity.   

10.           Shri Narain also submitted that marketability is an essential  

ingredient to hold whether a product is dutiable or excisable and it is for the  

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Revenue to prove the same.  Learned counsel also submitted that it is not  

the function of the Tribunal to enter into that arena and make suppositions,  

rather  it  should  examine  the  question  whether  sufficient  materials  have  

been produced by the Revenue to discharge its burden.  In support of his  

contention  learned  counsel  placed  reliance  on  various  decisions  of  this  

court such as  Hindustan Ferodo Ltd.   vs.   Collector of Central Excise,  

Bombay (1997) 2 SCC 677;  Union of India  vs.  Sonic Electrochem (P) Ltd.  

(2002) 7 SCC 435; Cipla Ltd.  vs.  Commissioner of C.Ex., Bangalore  2008  

(225) ELT  403 (SC).;  Gujarat Nermada Valley Fert. Co. Ltd.  vs.  Collector  

of Ex.& Cus.(2005) 7 SCC 94.  

11. Mr.  V.  Sekhar,  learned  senior  counsel  appearing  for  the  

Revenue, on the other hand, contended that the materials produced by the  

Revenue would be sufficient to hold that the product in question is a distinct  

product  having  commercial  identity  and  is  capable  of  being  marketed.  

Learned  counsel  submitted  that  by  the  process  undertaken  by  the  

assessee a new product  emerges which is capable of  being brought  to  

market  or  being  sold.   Learned  senior  counsel  also  submitted  that  the  

material is also being sent out of  the factory to the job workers for stitching  

purposes and is brought back from them, and, hence the said product is a  

commercially distinct product liable to be classified under the sub-heading  

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5905.10 of  schedule  to Central  Excise Tariff  Act.   Reference was also  

made to the judgment of this court in UOI vs. Delhi Cloth & General Mills   

Co.  1997 (1) ELT J-199.   Referring to the division bench judgment of the  

Calcutta  High  Court  reported  in  (1993)  68  ELT 756  (Calcutta),  learned  

counsel submitted that  the Calcutta High Court on identical products, dealt  

with by the assessee, decided against the assessee.

12. We have heard counsel on either side at length and have also  

gone through the show cause notices issued by the Collector, objections  

filed by the assessee and the order passed by the Commissioner, views  

expressed by both the members and the order passed by the Tribunal on  

the question of exigibility of the product.  The process undertaken by the  

assessee has been elaborately dealt with in the above mentioned orders  

and it  is  unnecessary  to  reiterate  the  same.   Suffice  it  to  say that  the  

product in question is used as an intermediate product, goes to make the  

component for the final product. The burden to show that the product in  

question is marketed or capable of being  bought or sold in the market so  

as to attract duty is entirely on the Revenue.  Reference may be made to  

the decision of this Court in Union of India   vs.  Delhi Cloth and General   

Mills  Co.  (1997)  5  SCC  767.   The  test  of  marketability   often  called  

‘Vendability test’ has been elaborately considered by a constitution Bench  

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Judgment of this Court in Union of India  vs.  Delhi Cloth  and General Mills   

Company Limited AIR 1963 SC 791. This legal position has been reiterated  

by  this  Court  in  A.P.  State  Electricity  Board  vs.   Collector  of  Central   

Excise, Hyderabad (1994) 2 SCC 428 and various other decisions, wherein  

this Court held that the marketability is essentially a question of fact to be  

decided on the facts of each case and there can be no generalization, and  

the fact that goods are not in fact marketed is of no relevance and the  

question  whether  they  are  capable  of  being  marketed.   Admittedly,  the  

assessee is not marketing the product but still the question is whether the  

product is capable of being marketed.   

13. The Revenue in this case has not produced any material before  

the Tribunal to show that the product is either been marketed or capable of  

being  marketed  but  expressed  its  opinion  unsupported  by  any  relevant  

materials.  This Court in  Hindustan Ferrado Limited (supra) explained the  

function of the Tribunal in such situations as follows:-

“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 they are marketable at all.  As to the brittleness of  the said  rings,  it  was  for  the Revenue to  demonstrate  that  the  appellants’  averment  in  this  behalf  was  incorrect  and not for the Tribunal to assess their brittleness for itself.  

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Articles in question in an appeal are shown to the Tribunal to enable  the Tribunal to comprehend what it is that it is dealing with.  It is not  an  invitation  to  the  Tribunal  to  give  its  opinion  thereon,  brushing  aside the evidence before it.  The technical knowledge of members  of the Tribunal makes for better appreciation of the record, but  not  its substitution.”

14. In  the  above  case this  Tribunal  was concerned with  articles  

such as rings punched from asbestos boards and two types of asbestos  

fabrics, namely, special fabrics in coil of continuous length and M.R. grey in  

rolls.  This Court noticed that the Revenue had not produced any evidence  

to establish that the said rings fell within Item 22F of Schedule to the Act  

and held in favour of the assessee.   

15. In  Sonic Electrochem Limited (supra)  this  Court  was  dealing  

with  the  question  whether  plastic  body,  a  part  of  electronic  mosquito  

repellant and fragrant mat are chargeable to excise duty under Articles 5(f)  

of Notification 160/68-CE dated March 1, 1986 and sub-heading 3307.49  

respectively of the Central Excise and Tariff Act, 1985.  In that case, this  

Court held that in order to establish that goods are liable to duty, two test  

have to be satisfied viz.,  (a) manufacture and (b) marketability.   On the  

question of marketability of the articles this Court held as follows :-

“…..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  

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identity of the articles known to the market for being got and sold.  The fact that product in question is generally not been got 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.”

16. In  Gujarat Narmada Valley Fertilisers Corporation (supra), this  

Court was dealing with the question whether the intermediate chemicals  

which are formed in the process of manufacture Butachlor are liable to tax  

under the Salt Act and held that the test report produced by the Revenue  

will not establish the marketability of the product.  It further held that unless  

the product is capable of being marketed and is known to those who are in  

the market as having an identity as distinctly identifiable that the article is  

subject to excise duty, the product cannot be treated as a product that is  

marketable.  Marketability cannot be established by mere stability of the  

product.  Something more would have to be shown to establish that the  

products are known in the market as commercial product.

17. In Cipla Limited (supra) this Court was examining the question  

whether Benzyl Methyl Salycylate (BMS) is marketable and therefore liable  

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to excise duty.  After referring to various earlier decisions of  this Court , it  

was held that marketability is an essential ingredient to hold that an article  

is dutiable or excisable to duty and it is well established principle of law that  

the burden is on the Revenue to prove that the goods are marketable or  

excisable and held that the product in question was neither marketed nor  

marketable and was only an intermediate product.  It is useful to refer to the  

law laid down by this Court which reads as follows:-

“ Since marketability is an essential ingredient to hold that a product  is  dutiable  or  exigible,  it  was  for  the  Revenue  to  prove  that  the  product  was  marketable  or  was  capable  of  being  marketed.  Manufacturing  activity,  by  itself,  does not  prove the  marketability.  The product produced must be a distinct commodity known in the  common parlance to the commercial community for the purpose of  buying and selling.  Since there is no evidence of either buying or  selling  in  the  present  case,  it  cannot  be held  that  the product  in  question was marketable or was capable of being marketed.  Mere  transfer of BMS by the appellant from its factory at Bangalore to its  own unit at Patalganga for manufacture of final product was either  marketed or was marketable.”

18. Revenue in this case has not succeeded in establishing that the  

product in question was either marketed or was capable of being marketed.  

The test of marketability is that the product which is made liable to duty  

must be marketable in the condition in which it emerges.  No evidence has  

been  produced  by  the  Revenue  to  show  the  product  unvulcanised  

sandwiched fabric as such is capable of being marketed, without further  

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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.

19. The test  report  dated 25.10.1994 of  the Chemical  Examiner,  

SPB  hand  book  of  rubber  products  and  the  statement  of  the  

Superintendent (Supply and Transportation) of the assessee’s company do  

not show that the product in question is capable of being marketed.   The  

mere theoretical possibility of the product being sold is not sufficient but  

there should be commercial capability of being sold. Theory and practice  

will not go together when we examine the marketability of a product.  On  

the  other  hand materials  produced by the assessee i.e.  affidavit  of  Mr.  

Shomnath  Chokravarty,  Consultant  –  Rubber  and  Plastic  Technology,  

affidavit of the Production Manager of the assessee Company, certificate of  

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Prof.  C.K.Das,  IIT,  Kharagpur,  affidavit  of  Ms.  Parvati  Pada Mukherjee,  

certificate  from Footwear  Design  and  Development  Institute,  Ministry  of  

Commerce,  Government of India and The Vanderbilt  Rubber Handbook,  

would show that the product in question is only an intermediary product  

generally used for captive consumption which has no commercial identity  

as such.  

20. We are also of the view that no reliance can be placed on the  

Division Bench Judgment of the  Calcutta High Court reported in  Union of  

India (UOI)  vs.  Bata India Ltd.  1993 (68) ELT,756 (Cal) since this Court  

while dismissing  SLP(C)No.6146 of 1993 filed by the assessee against the  

above judgment  clearly opined that the merits of the case was not being  

looked into since the operative portion of the judgment was in favour of the  

assessee herein and hence the question as to whether the product was  

excisable or not was not decided.   

21. In view of the above facts and circumstances, we are inclined to  

allow this appeal and set aside the order of the Tribunal and quash the  

show cause notices issued to the assessee since the Revenue had not  

produced any relevant materials to show the marketability of the product.  

We are  informed that  vide Notification  No.143/94-CE dated 7.12.94 the  

product in question stands exempted if captively used for the manufacture  

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of  exempted  footwear.  Civil  appeal  is,  therefore,  allowed  as  above,  

directing  the Tribunal to dispose of the appeal without delay.

…………………………………..J.

(DALVEER BHANDARI)

…………………………………..J.

(K.S. RADHAKRISHNAN)

New Delhi;

April 12, 2010

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