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PETITIONER: UNION CARBIDE INDIA LIMITED

       Vs.

RESPONDENT: UNION OF INDIA AND ORS.

DATE OF JUDGMENT04/04/1986

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. SEN, A.P. (J) MADON, D.P.

CITATION:  1986 AIR 1097            1986 SCR  (2) 162  1986 SCC  (2) 547        JT 1986   453  1986 SCALE  (1)530  CITATOR INFO :  F          1989 SC1153  (7)  R          1990 SC  59  (6)  R          1990 SC1893  (4)

ACT:      Central Excise and Salt Act, 1944, s. 3 and Entry 27 of First Schedule  - Aluminium  cans for torch bodies - Whether excisable goods.      Words & Phrases - "Excisable goods" - Meaning of.

HEADNOTE:      The appellant, a public limited company, carries on the business  of   the  manufacture   and  sale  of  flashlights (torches). It  used to  purchase aluminium slugs and produce aluminium cans  or torch  bodies at its factory by a process of extrusion.  The Superintendent of Central Excise required the appellant  to submit  a price  list in  respect  of  the aluminium cans  for the purpose of levying excise duty under section 4  of the  Act.  The  appellant,  anxious  to  avoid coercive action,  filed a  price declaration  in  which  the price of  aluminium cans  was  calculated  at  the  cost  of production plus  a margin  of profit  of  5%  of  the  cost. However, it  contended before  the Excise Authority (i) that aluminium cans  cannot  be  described  as  "goods"  for  the purposes of  excise duty inasmuch as they are not marketable and are prepared for the flashlights manufactured by it; and (ii) that the preparation of aluminium cans out of aluminium slugs did not amount to manufacture, and that aluminium cans were merely  an intermediate  product in  the manufacture of flashlights. These  contentions before  the Excise Authority having failed, it filed a writ petition in the High Court. A Single Judge  allowed the writ petition but a Division Bench of the  High Court  allowed the  appeal  of  the  respondent holding that the production of aluminium cans from aluminium slugs amounted  to manufacture  and that  the aluminium cans could be described as "goods" for the purposes of the Act.      Allowing the appeal, 163 ^      HELD: 1.  The aluminium  cans produced by the appellant

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are not  capable of  sale to  a  consumer.  They  cannot  be described as  excisable goods  and, therefore,  do not  fall within the  terms of  section 3  of the  Central Excises and Salt Act,  1944 read  with Entry  27 of  the First  Schedule thereto. [167 G]      2. The  excise duty  is an  indirect tax  in which  the burden of  the imposition  is  passed  on  to  the  ultimate consumer.   In   that   context,   the   expression   "goods manufactured or  produced" must  refer to articles which are capable of being sold to a consumer. [166 B-C]      Union of  India v.  Delhi Cloth & General Mills, [1963] Supp. 1  S.C.R. 586 and South Bihar Sugar Mills Ltd. etc. v. Union of India & Ors., [1968] 3 S.C.R. 21, relied upon.      In the instant case, the aluminium cans prepared by the appellant are  employed entirely by it in the manufacture of flashlights, and  are not  sold as  aluminium  cans  in  the market. The record discloses that the aluminium cans, at the point at which excise duty has been levied, exist in a crude and elementary  form incapable  of being  employed  at  that state as  a component  in a  flashlight. The cans have sharp uneven edges  and in  order to  use them  as a  component in making flashlight  cases the  cans have  to undergo  various processes such  as trimming,  threading and redrawing. After the cans  are trimmed, threaded and redrawn they are reeded, beaded and  anodised or  painted. It  is at  that point only that they  become a distinct and complete component, capable of being used as a flashlight case for housing battery cells and having  a bulb  fitted to  the case.  Therefore,  it  is difficult to believe that the elementary and unfinished form in which  they exist immediately after extrusion suffices to attract a  market. No  satisfactory material to the contrary has been  placed by  the respondents.  The record  discloses that whatever  aluminium cans  are produced by the appellant are subsequently  developed  by  it  into  a  completed  and perfected component  for being employed as flashlight cases. [166 E-H; 167 A-C;]

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1103 of 1972.      From the  Judgment and  Order dated 22nd February, 1972 of the  Allahabad High  Court in  Special Appeal  No. 307 of 1971. 164      Dr. Y.S. Chitale, T.M. Ansari, P.K. Ram and D.N. Mishra for the Appellant.      R. Thyagarajan,  A.  Kumar  and  R.N.  Poddar  for  the Respondents.      The Judgment of the Court was delivered by      PATHAK, J.  This appeal  by certificate  granted by the High Court  of Allahabad  raises the  question  whether  the manufacture of  aluminium cans  or torch bodies is liable to excise duty  under Entry  27(e) of the First Schedule to the Central Excises and Salt Act, 1944.      The appellant,  The Union  Carbide India  Limited, is a public limited  company and  carries on  the business of the manufacture and  sale of  flashlights  (torches),  dry  cell batteries,  chemicals  and  plastics.  The  flashlights  are manufactured  by   one  of   its  Divisions,   the  Eveready Flashlight  Campany,   Lucknow.  The   appellant   purchases aluminium slugs from the manufacturers of aluminium in India and produces  aluminium cans  or torch bodies at its factory by a  process of  extrusion. Before  March 1, 1970 aluminium

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cans were  subjected to  basic excise duty at 20 per cent ad valorem plus  special duty  at 20 per cent of the basic duty on a value of Rs. 8,600 per metric tonne fixed as the tariff value by  the Government  of India  by a  Notification dated January 21,  1969.  By  an  amendment  incorporated  in  the Finance Act  1970 with  effect from  March 1, 1970 the basic duty was  fixed at  25 per cent ad valorem plus special duty at 20  per cent of the basic duty. By Notification No. 65/70 dated March 1, 1970 the Notification of January 21, 1969 was rescinded.      The appellant  recceived a  letter dated  March 3, 1970 from the  Superintendent of  Central Excise, Lucknow stating that the tariff rate of duty on extruded shapes and sections of aluminium  had been  raised and that aluminium cans would be subjected  to duty  on ad  valorem basis  on the value as determined  under  section  4  of  the  Act,  and  that  the appellant  should   send  price   lists  for  approval.  The appellant, anxious  to avoid  coercive action,  filed  price declarations in  which  the  price  of  aluminium  cans  was calculated as the cost of 165 production plus  a margin  of profit  of 5  per cent  of the cost.  The   appellant,  however,  took  the  position  that aluminium cans  were neither  sold nor were capable of being sold in  the market, and therefore could not be described as ’goods’ for  the purposes  of the  Central Excises  and Salt Act, 1944.  It was  also asserted  that the  preparation  of aluminium cans  out of  aluminium slugs  did not  amount  to manufacture,  and   that  aluminium   cans  were  merely  an intermediate products in the manufacture of flashlights. The contentions of  the appellant  did not  find favour with the excise authorities.      The appellant  filed a  writ petition in the High Court of Allahabad for a mandamus directing the excise authorities not to  levy and  collect excise duty on aluminium cans, and to refund  the excise  duty levied  and collected  from  the appellant on  aluminium cans  from March  1, 1965. A learned Single Judge  of the High Court allowed the writ petition by his judgment  and order  dated April 15, 1971, but on appeal by the  Union of  India a  Division Bench  of the High Court reversed the  judgment and order of the learned Single Judge and dismissed the writ petition on February 22, 1972. Before the learned  Judges an  attempt was made by the appellant to show that  the process  employed in  the preparation  of the aluminium cans  could not  be  described  as  a  process  of "extrusion" but  in fact  should properly  be described as a process of  "impact extrusion".  The learned Judges were not impressed by  the distinction attempted by the appellant and held that  the manufacture  of the aluminium cans fell under Entry 27(e) of the First Schedule to the Central Excises and Salt  Act,  1944,  which  refers  to  "extruded  shapes  and sections including  extruded pipes  and tubes".  The learned Judges pointed out further that even otherwise the aluminium cans would  fall under Entry 27(d) which mentions "pipes and tubes other  than extruded pipes and tubes", and inasmuch as the rate  of duty  was the  same the  point  raised  by  the appellant was  of no  significance. The  learned Judges also held that  the production  of aluminium  cans from aluminium slugs amounted  to manufacture  and that  the aluminium cans could be  described as  "goods"  for  the  purposes  of  the Central Excises and Salt Act, 1944.      The only contention urged by the appellant before us is that the aluminium cans produced by the appellant cannot be 166 described  as  "goods"  for  the  purposes  of  excise  duty

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inasmuch  as  they  are  not  marketable  and  are  prepared entirely by  the appellant  for the flashlights manufactured by it.      It does seem to us that in order to attract excise duty the article  manufactured must  be  capable  of  sale  to  a consumer. Entry  84  of  List  I  of  Schedule  VII  to  the Constitution specifically  speaks of  "duties of  excise  on tobacco  and   other  goods   manufactured  or  produced  in India...", and  it is  now well accepted that excise duty is an indirect  tax, in  which the  burden of the imposition is passed on  to the  ultimate consumer.  In that  context, the expression "goods  manufactured or  produced" must  refer to articles which  are capable  of being sold to a consumer. In Union of  India v. Delhi Cloth & General Mills, [1963] Supp. 1 S.C.R.  586, this  Court considered  the  meaning  of  the expression "goods"  for the  purposes of the Central Excises and Salt  Act, 1944  and observed that "to become ’goods’ an article must  be something  which can ordinarily come to the market to  be brought  and sold",  a  definition  which  was reiterated by  this Court  in South  Bihar Sugar Mills Ltd., Etc. v. Union of India & Ors., [1968] 3 S.C.R. 21.      The  question   here  is  whether  the  aluminium  cans manufactured by  the appellant  are capable  of  sale  to  a consumer. It  appears on  the facts before us that there are only two manufaturers of flashlights in India, the appellant being one  of them.  It appears also that the aluminium cans prepared by the appellant are employed entirely by it in the manufacture of  flashlights, and  are not  sold as aluminium cans in  the market. The record discloses that the aluminium cans, at  the points  at which  excise duty has been levied, exist in  a crude  and elementary  form incapable  of  being employed at  that stage  as a component in a flashlight. The cans have  sharp uneven  edges and in order to use them as a component in  making  flashlight  cases  the  cans  have  to undergo various  processes such  as trimming,  threading and redrawing. After  the cans are trimmed, threaded and redrawn they are  reeded, beaded  and anodised  or painted. It is at that point  only that  they become  a distinct  and complete component, capable  of being  used as  a flashlight case for housing battery  cells and having a bulb fitted to the case. We find  it difficult  to believe  that the  elementary  and unfinished form in which they exist immediately 167 after extrusion  suffices to attract a market. The appellant has averred  on affidavit  that aluminium  cans in that form are unknown  in the  market. No satisfactory material to the contrary has  been placed  by  the  respondents  before  us. Reference has  been made by respondents to the instance when aluminium cans  were ordered  by the  appellant from Messrs. Krupp Group of Industries. This took place, however, in 1966 as a solitary instance, and what happened was that aluminium slugs were  provided by the appellant to Messrs. Krupp Group of Industries  for extrusion  into aluminium cans. The facts show that  the transaction  was a works contract and nothing more. Apparently,  the appellant  made use  of the requisite machinery owned  by that  firm for extruding aluminium cans. Not a  single instance  has been provided by the respondents demonstrating that  such aluminium  can have  a market.  The record discloses  that whatever  aluminium cans are produced by the  appellant are  subsequently developed  by it  into a completed and  perfected component  for  being  employed  as flashlight cases.      Much emphasis  has been  laid by the respondents on the circumstance that  the appellant had in the past treated the aluminium cans  produced by  it as  excisable goods  and had

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submitted  price  lists  to  the  excise  authorities  which included a  margin of  profit in  the specified price. It is clear that  the appellant  did so  under the mistaken belief that the aluminium cans attracted excise duty. The margin of profit included  in the  price was arrived at notionally, in order merely  to  comply  with  the  demand  of  the  excise authorities for  the submission  of price lists. The conduct of  the   appellant  in  the  past,  having  regard  to  the circumstances of  the case,  cannot serve as evidence of the marketability of  the  aluminium  cans.  Indeed,  subsequent price lists were submitted under "protest" by the appellant, who maintained that the article did not attract excise duty.      We are  satisfied upon  the material before us that the aluminium cans produced by the appellant cannot be described as excisable  goods and  therefore do  not fall  within  the terms of  s.3 of the Central Excises and Salt Act, 1944 read with Entry 27 of the First Schedule thereto.      In the  result, the appeal is allowed, the judgment and order dated February 22, 1972 of the Division Bench of the 168 High Court  of Allahabad  are set aside and the judgment and order dated  April 15,  1971 of  the learned Single Judge of that High  Court are  restored. The appellant is entitled to its costs of this appeal. M.L.A.                                       Appeal allowed. 169