IN THE HIGH COURT OF DELHI AT NEW DELHI
SUBJECT : CENTRAL EXCISES AND SALT ACT, 1944
WP (C) No. 2499 of 1982
Judgement reserved on: March 1, 2005
Judgement delivered on: May 5, 2005
M/s Deccan Fibre Glass Ltd.
8th Floor, Parishram Bhavan
Basheer Bagh, Hyderabad
through its Director
Mr. T.S. Balaram
Through
...Petitioner
Mr. R. Narain with Mr. Pravin
Bahadur, Advocates
Versus
1.
Union of India
represented by Secretary to Govt. of India
Ministry of Finance
Department of Revenue
New Delhi
2.
Appellate Collector of Central Excise
Madras
3.
Assistant Collector of Central Excise
Hyderabad II Division
Hyderabad
...Respondents
Through Mr. Suresh Kait, Advocate
CORAM
HON'BLE MR. JUSTICE SWATANTER KUMAR
HON'BLE MR. JUSTICE MADAN B. LOKUR
MADAN B. LOKUR, J.
1.
The Petitioner is aggrieved by an order dated 22nd March, 1982 passed
by the Government of India in a revision filed by the Petitioner under the provisions
of the Central Excises and Salt Act, 1944 (the Act).
2.
The Petitioner manufactures mineral fibres and yarns in its factory in
Thimapur. The end product is the following:(a)Chopped strand mat “ glass fibre.
(b)Chopped strand “ glass fibre.
(c)Rovings “ glass fibre.
(d)Yarn spun wholly out of glass fibre; and
(e)Woven roving “ glass fibre.
3.
These goods are cleared by the Petitioner under Item 22F of the First
Schedule to the Act.
4.
The jurisdictional Assistant Collector was of the view that the Petitioner
was also manufacturing glass fibres as an intermediary product but the Petitioner
wrongly did not show this in its classification list.
5.
The Petitioner did not accept the view of the Assistant Collector and
filed an appeal before the Appellate Collector who confirmed the view of the
Assistant Collector.
6.
In the revision petition before the Government, it was contended by the
Petitioner that glass fibre is an intermediate product, which arises in a continuous
process in the manufacture of the five items mentioned above. It was contended that
the plant of the Petitioner is integrated and the glass fibre in question is not a
marketable commodity. It was contended that in view of this, it is not exigible to
central excise duty.
7.
The Government held that since glass fibre was manufactured and
consumed by the Petitioner, it was liable to excise duty. It was, therefore, held that
there was no error committed by the jurisdictional Assistant Collector as well as the
Appellate Collector.
8.
The only issue that has been urged by learned counsel for the Petitioner
in this case is that the glass fibre said to have been manufactured in a continuous and
integrated process is not a marketable commodity and, therefore, cannot be classified
as excisable goods within the meaning of the Act. Learned counsel for the Petitioner
also raised a question of discrimination inasmuch as it was contended that in respect
of a plant of another concern M/s FGP Ltd. in Thane, a similar question had arisen
and the jurisdictional Assistant Collector in that case, by an order dated 31st October,
1990 had accepted the contention of M/s FGP Ltd. and concluded that glass filament
at the bushing stage and cake stage are not marketable goods and, therefore, not liable
to excise duty. It was submitted that the Government has accepted the order of the
Assistant Collector and there was no reason why the Petitioner should be made liable
to excise duty in respect of an identical commodity.
9.
The Courts have, time and again, accepted that marketability of goods is
of crucial importance for the purpose of levy of excise duty. In Bhor Industries Ltd.
vs. Collector of Central Excise, 1989 (40) ELT 280 (SC), the question was whether
crude PVC films produced by the appellants therein were liable to excise duty. On the
basis of the facts available before the Supreme Court, it was held that crude PVC
films were not known in the market and could not be sold in the market and were not
capable of being marketable. The Supreme Court was of the view that the Tribunal
did not, erroneously, apply the test of marketability. This test of marketability was
reiterated by the Supreme Court in Collector of Central Excise vs. Ambalal Sarabhai
Enterprises, 1989 (43) ELT 214 (SC).
10.
A Division Bench of this Court in Indofil Chemicals Ltd. vs. Union of
India, 1994 (73) ELT 9 (Del.) once again dealt with this issue and in paragraph 19 of
the Report, it was held that the theoretical possibility of an article being marketable
will not convert it into excisable goods. In other words, the goods have to be
marketable as such before they can be held liable to excise duty.
11.
Recently, in FGP Ltd. vs. Union of India, 2004 (168) ELT 289 (SC), the
Supreme Court reiterated the view that marketability of goods is an essential
ingredient for manufactured goods being subject to excise duty (paragraph 14 of the
Report).
12.
After adverting to this aspect of the matter, learned counsel for the
Petitioner drew our attention to an affidavit filed by K.V. Gopalakrishnan before the
Government during the pendency of the revision petition. It was submitted that the
Government did not take this affidavit into consideration. On a reading of the
affidavit, it is quite clear that glass filament, which is manufactured by the Petitioner
as an intermediate product, is not marketable. It is stated in the affidavit as follows:The manufacturing process in our plant is the direct melt process for manufacture of
continuous filaments which is different from a staple filament plant where shorter
noncontinuous filaments are manufactured. A flowchart of the process is annexed.
Raw materials consisting of clay, limestone, boric acid and some other ingredients are
melted in an electrical furnace to form glass. The molten glass is refined and drawn
through platinum bushings when continuous filaments are obtained. The glass flows
through the bushings under gravity and fine filaments are drawn mechanically
downwards from the glass as it exudes from the tips of the bushings. Drum winders
below the bushings accelerate the glass to a speed of several thousand metres per
minute, attenuating the filament as it cools until it is barely visible. The filaments pass
over a size applicator roller, then on to a collecting point to form one or more strands.
These strands are wound on to the drum as a package or 'cake' and are the basic
material from which all forms of Fibreglass reinforcements are produced.
3.
The continuous filament after it is drawn is immediately taken up for
further processing. Different chemicals are applied to the glass filaments in the size
applicator roller as mentioned in Para 2 above and the continuous filament package or
cake is passed for different types of processing depending upon the nature of the
chemical application in the size applicator. The continuous filament package at this
stage is devoid of strength, is wet and the chemicals applied tend to migrate towards
outer surface instead of remaining uniformly distributed causing damage to the
filaments in strength and appearance over a passage of time. Also filamentisation of
filament takes place if they are kept for a longer time endangering the strength of the
filament. The package is processed immediately and within a period of 12 hours at the
maximum. If for some reason further processing is not possible beyond this time the
continuous filament package is scrapped.
4.
To the best of my knowledge this is the process adopted in all continuous
filament manufacturing plants in India and elsewhere in the world. It is not possible to
store or market continuous filament strand packages at this stage of its processing
because of the technical problem connected with the migration of the size and other
chemicals on the filaments.
5.
The continuous filament packages intended for being twisted into spun
yarn are directly taken to the high speed ring frames for conversion into spun yarns of
different twists in a process similar to conventional spinning for giving strength to the
yearn. This spinning is done in the wet stage without curing. If the cakes are dried
they cannot be twisted causing breakage on the yarn. The continuous filament
packages for making Chopped strand Mat, Chopped Strand, Rovings and Woven
Rovings are cured in an oven. The packages are taken out of the oven, cooled and
processed in a Chopped Strand Machine to make Chopped Strand Mat, in Roving
Winders for making Rovings and on the Strand Chopper Machine to make Chopped
Strands. Woven Rovings are made in a loom using rovings which have been specially
treated for making woven fabrics.•
13.
It has been mentioned in the impugned order that during the course of
personal hearing, the Petitioner's consultant did not deny that filament yarn was first
cured thereafter taken in for production of other excisable goods and that the cured
product appeared as a distinct product which was stable and could be stored for a long
period of time. Learned counsel for the Petitioner submitted that this finding is totally
inaccurate and does not reflect the correct factual position. Reliance in this regard has
been placed upon an affidavit dated 2nd August, 1982 of one M.M. Mathew who had
appeared before the revisional authority. He says in his affidavit that the marketability
of filament yarn was discussed before the revisional authority and the Petitioner was
directed to file an affidavit on this very issue and that the affidavit of Gopalakrishnan
was filed in response to the query raised by the revisional authority.
14.
The Respondents have filed a counter affidavit of V.V. Hariharan,
Assistant Collector but no reply has been given to the averment that glass fibre is not a
marketable product. All that is said in this regard, apart from a bald denial, is that
marketability is not a criterion for levy of excise duty. As already noted hereinabove,
this is contrary to the law as interpreted by the Supreme Court.
15.
Consequently, in the absence of any effective reply by the Respondents,
the case of the Petitioner must be accepted that glass fibre which is manufactured by it
as an intermediate product in a continuous integrated process is not a marketable
commodity and is, therefore, not exigible to excise duty.
16.
The Respondents have not denied that under similar circumstances M/s
FGP in Thane is not been subjected to excise duty in respect of glass fibre
manufactured by it in a continuous integrated process.
17.
In view of the above, there is no option but to set aside the impugned
order dated 22nd March, 1982 and hold that the glass fibre manufactured by the
Petitioner in its factory at Thimapur is not liable to excise duty.
16.
The writ petition is allowed. No costs.
Sd./( Madan B. Lokur )
Judge
Sd./-
May 5, 2005
( Swatanter Kumar )
Judge