Holding

A product, even if named in the excise tariff, is liable to duty only if it is produced or manufactured and is marketable or capable of being marketed; the unstable resol used as an intermediate was not marketable and therefore not excisable.

Summary

Mis Motilates Pvt. Ltd. and other appellants manufactured laminated sheets using phenol‑formaldehyde resin that was produced as an unstable solution (resol) and consumed only within their own process. The Central Excise Department, relying on the 1979 amendment to the Central Excise Rules, claimed that the intermediate resin was dutiable even though it was not sold or marketed. The lower authorities held that an intermediate product must be a known, marketable commodity to attract excise duty, and therefore the resol was not excisable. The Tribunal reversed this view, treating the resol as a specific item under tariff entry 15A and holding it dutiable despite its instability. The Supreme Court examined the statutory scheme, held that "produced or manufactured" goods must satisfy the test of marketability, and that the statutory presumption for captive consumption can be rebutted. It concluded that the unstable resol, being incapable of sale or marketing, was not an excisable good, and allowed the appeals.

Issues considered

Whether goods specified in the Central Excise Tariff are dutiable merely by being produced or manufactured, or only when they are marketable or capable of being marketed.
Whether the intermediate phenol‑formaldehyde resin (resol) used by the appellants qualifies as a marketable good within the meaning of the Central Excise & Salt Act.
Whether the 1979 amendment to the Central Excise Rules creates a statutory presumption that captively consumed goods are marketable, and if that presumption can be rebutted.

Subjects

excise dutymarketabilitycaptively consumed goodsintermediate productresolCentral Excise Acttariff scheduledutiability

Judgment

MIS MOTi LAMINATES PVT. LTD. ETC. A
v.
COLLECTOR OF CENTRAL EXCISE, AHMEDABAD

FEBRUARY 14, 1995
B
[R.M. SAHAI, N.P. SINGH AND K.S. PARIPOORNAN, JJ.)

Central Excise & Salt Act, 1944-Section 35-L~entral Excise Salt
Rules 1944-Rules 9,49 and 173(1) as amended in 1979-Exigibility of
duty-Goods mentioned in Schedule of Excise Tariff-whether dutiable as C
such-Held, No-Test of marketability-Goods produced or manufactured
ipso facto do not attract duty-They must be marketable or capable or being
marketed-Dutiability of goods captively consumed.

The appellants were manufacturers and sellers of laminated sheets.
In the process of manufacturing the sheets the appellants used the raw D
material by processing them with each other and with other material. In
the process Phenol Formaldehyde was produced. The solution was taken
out from the vessel in its semi-processed «ondition and was used without
further processing in manufacture of laminated sheets. Since it was not
marketed or sold by the appellants and the solution was captively con•
sumed only, the Department did not levy any duty on it. In 1979, Rules 9,49 E
and 173(1) of the Central Excise Rules, 1994 were amended whereby even
captively consumed goods produced or manufactured became dutiable.
Consequently the Superintendent of Central Excise issued Notice that in
view of the amendments in Rules pheno~ formaldehyde and melamine
formaldehyde were liable to duty. The appellants claimed that the reatting p
mixtures were not only unstable having short life but they were not
marketable in the form they were obtained in intermediate stage in a
continuous process, that the reacting mixture in manufacture want on and
it was complete on formations of laminated sheets by application of heat
·~-( and pressure to these goods. The Assistant Collecter found that the
mixture, namely, solution of the resin and water was not stable but held G
that merely because solutions were not stable it did not mean that the
resins produced by the appellants were not goods. The Collector (Appeals)
agreeing with the finding that solutions were not stable allowed the ap-
peals. It was held that an intermediate product in order to be excisable
must be a product known to the market or commercial community; and H
81
)
82 SUPREME COURT REPORTS [1995) 2 S.C.R.

A that in the instant case even though the products were used for the
manufacture of plastic laminated sheets and synthetic resin was formed
as an intermediate product but it being unstable in a non-marketable
condition the resin mixture could not be considered as excisable under
tariff item 15 A(l) of Central Excise Tariff. In further appeal filed by the
Department the Tribunal held that resins which occurred in three stages
B was nothing but resol at 'A' stage and resol being mentioned in item 15-A
of Tariff Schedule it was covered by the 'chemical nomenclature' and,
therefore, it was exigible to duty; that since, 'the products manufactured
by 'appellants, fell under 15-A(l) the fact that these were not marketed or ·
sold did not make any difference; and that "since it was not made out, 'that
C the product' was required to be taken into immediate use or otherwise i.t
would have been rendered useless or it would cease to be resin" it was held
that the product even though capable of, 'further condensation or -·'t-
polymerization' had reached, a definite stage of manufacture for a definite
end use and, therefore, 'had to be held to be goods'. These appeals were
D filed against the decision of the Tribunal.
The Department urged that resin. or solution which was produced by
the appellant was technically known as resols and resols being one of the
items me~tloned under item 15 A it was a specific item, exigi.ble to duty
and it could not further be required to satisfy the common parlance test
E specially because this was a chemical and not a product which was com· ,
monly bought and sold in the market; that once it was found that it was
manufactured or produced then it should be deemed to have satisfied the
test of marketability and consequently it was excis.able goods within the
meaning or the Act; that marketing capability depends on nature of goods
F and the test of marketability and capable of being marketed could not be
applied to such goods as resol, it having been mentioned in item no. 15A.

The question raised for consideration was whether various goods
mentioned in the schedule of Excise Tariff are dutiable, as such or they
would be, 'excisable goods' only when they are marketable or capable of
G being marketed.

Allowing the appeals, this Court

HELD : 1. The duty of excise is leviable under Entry 84 of List l of
the Vllth Schedule of the Central Excises & Salt Act on goods manufa~- .
·H tared, or produced. This is why the charge under Section 3 of the Act is
MOTI LAMINATES LID. v. CCE 83

on all, 'excisable goods', 'produced or manufactured'. The expression A
1excisable goods' has been defined by clause (d) of Section 2 to mean,
'goods' specified in the Schedule. The scheme in the Schedule is to divide
the goods in two broad categories - one, for which rates are mentioned
under different entry and other the residuary. By this method all goods
are excisable either under the specific or the residuary entry. The word B
'goods' has not been defined in the Act. But it has to be understood in the
sense it has been used in Entry 84 of the Schedule. That is why Section 3
levies duty on all excisable goods mentioned in the Schedule provided they
are produced and manufactured. Therefore, where the goods are specified
in the Schedule they are excisable goods but whether such goods can be
subjected to duty would depend on whether they were produced or C
manufactured by the person on whom duty is proposed to be levied. The
~ expression 'produced or manufactured' has further been explained to
mean that the goods so produced must satisfy the test of marketability. ·
Consequently it is always open to an assessee to prove that even though
the goods in which he was carrying on business were excisable goods being D
mentioned in the Schedule but they could not be subjected to duty as they
were not goods either because t~ey were not produced or manufactured by
it or it they had been produced or manufactured they were not marketed
or capable of being marketed. (90-B-F].

The duty of excise being on production and manufacture which E
means bringing out a new commodity, it is implicit that such goods must
be usable, movable, saleable and marketable. The duty is on manufacture
or production but the production or manufacture is carried on for taking
such goods to the market for sale. The obvious rationale for levying excise
duty linking it with production or manufacture is that the goods so p
produced must be a distinct commodity known as such in common par-
lance or to the commercial community for purposes of buying and selling.
Since the solution that was produced could not be used as such without
---( any further processing or application of heat or pressure, it could not be
considered as goods on which any excise duty could be levied. (90-G~HJ
G
2. Although the duty of excise is on manufacture or production of .
goods, but the entire concept of bringing out new commodity etc. is linked
· with marketability. An article does not become a good in the common
j>arlance unless by production or manufacture something new and different
is l>rought out which can be bought and sold. Therefore, any goods to H
I

84 SUPREME COURT REPORTS [1995] 2 S.C.R.

A attract excise duty must satisfy the test of marketability. The tariff sChedule
by placing the goods in specific and general category does not alter the basic
character of leviability. The duty is attracted not because an article is
covered in any of the items or it falls in residuary category but it must
further have been produced or manufactured and it is capable of being
B bought and sold. [91-F-H, 92-A]
After amendment of rules 9 and 49 of the central Excise & Salt Rules
captively consumed goods become exigible to duty. The rationale for not
treating such goods as excisable was same that since such goods were not
brought to the market for buying and selling they could not be subjected to
C duty. But when the Rules were amended a fiction was created that any
article produced or manufactured if captively consumed was statutorily
presumed to satisfy the test of marketability. But this presumption can be
rebutted if it is established that the article produced and captively con-
sumed was neither goods nor marketable nor capable of being marketed.
The duty is attracted not by captive consumption of any article but it must
D be a good within the meaning of the Act which apart from having a distinc-
tive name and known as such must be marketable or capable of being
marketed. [94-D-E]

3. In the instant case even ifthe resin produced by the appellants were
resols as mentioned in item lSA it could not be subjected to duty. The
E purpose of specifying the goods in the Schedule is twofold, one, the rate on
which the duty would be charged and other that if the goods satisfy the
description and covered in the Entry then they are liable to pay excise duty.
But even in respect of specified goods it could be established that it was
marketable or capable of being marketed, therefore, no duty leviable on it.
F [94-H, 95-A]
4. Since the test of marketability or capable of being marketable
applies even to those goods which are mentioned in the tariff item the
intermediate resin produced by the appellants which are mentioned as
resols under tariff item no. 15 were not exigible to duty. [95-D)
G Indian Cable Co. Ltd. v. Collector of Central Excise Calr;utta, (1994)
74 ELT 22 (SC); Union of India and Anr. v. Delhi Cloth and General Mills
Co. Ltd., AIR (1963) SC 791; South Bihar Sugar Mills Ltd. & Anr. etc. v.
Union of India andAnr. etc., AIR (1968) SC 922;A.P. State E!ectricity Board
v. Collector of Central Excise, Hyderabad, [1994) 2 SCC 428; Union Carbide
H India Ltd. v. Union of India and Ors., (1986) 24 ELT 169; Bhor Industries
MOTI LAMINATES LTD. v. CCE[SAHAl,J.) 85

Ltd. v. Collector of Central Excise, (1989) 40 ELT 280 (SC) and Hindustan A
Polymirs v. Collector of Central Excise v.Ambalal Sarabai Enterprises, (~989)
43 ELT 314, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 80of1988
Etc. Etc.
B
From the Judgment dated 23.1.87 of the Central Excise and Salt Act,
1944 of the Customs Excise and Gold (Control) Appellate Tribunal, New
Delhi in A. No. ED/399/83-C Order No. 125-30 of 1987.

D..A. Dave, R.N. Karanjawala, Ms. Manik Karajawala, Bhaskar Prad-
han and Ms. Ruby Ahuja, M. Chandrashekharan, Additional Solicitor C
General and S.D. Sharma for the Respondent.

The Judgment of the Court was delivered by

R.M. SABAi, J. The qustion of law, the adjudication of which
ultimately shall be decisive of the issues arising in these appeals filed under D
Section 35-L of the Central Excises & Salt Act, 1944 (in brief 'the Act') is
)( whether various goods mentioned in the Schedule of Excise Tariff are
dutiable as such or they· would be, 'excisable goods' as defined in the Act,
only when they are marketable or capable of being marketed.

Law on this issue appears to be fairly settled. Recently a Three Judge
E
bench of this Court speaking through one of us (Hon'ble K.S. Paripoornan,
J.) in Inman Cable Co. Ltd. v. Collector of Central Excise, Calcutta, (1994)
74 ELT 22 while reversing the· order of the Tribunal that "the conversion
of PVC resin into PVC compound by the processes employed by the
assessee, amounts to "manufacture" within the meaning of Section 2(t) of F
the Act", therefore, it "was to be charged with excise duty" held, "the
provisions of the Act mandate that a finding that the goods are marketable
is a pre-requisite or "sine qua non" for the levy of duty".

But prior to adverting to it and notice in brief how the law on this
aspect has developed, it is but appropriate to mention that the precise G
dispute before the Tribunal was whether the appellants who are manufac-
turers and sellers of laminated sheets which fell under tariff item no. 68 of
the tariff schedule prior to 28th February 1986 were liable to pay duty on
such intermediate products produced by them, as were solutions of resin
and water which were not stable, merely, because they ~ere captively ff
86 SUPREME COURT REPORTS [1995) 2 S.C.R.

A consumed. Since the question of law is common and has arisen in more or
'
less similar circumstances in all the appeals, it is not necessary to give facts
of each case.

The appellants manufactured laminated sheets out of various raw
materials including paper and other chemicals, namely, phenol, formal-
B dehyde, hexamine etc. purchased from the open market after paying duty.
In the process of manuf'acturing lamina~ed sheets the appellants used the
raw material by processing them with each other and with other materials
like caustic· soda, methanol and hydro-chloric acid. Jn this process Phenol
Formaldehyde was produced out of Melamine, Formaldehyde, phenol,
c methanol, caustic soda, hexamine and hydrochloric acid. The process of
manufacture of phenol, formaldehyde as found by the Tribunal is described
thus:

"Formaldehyde is pumped into a reaction vessel and thereafter
Malamine is added. These two materials are stirred and thereafter
D Hydro-Chloric Acid is added in required quantity to accelerate
the reaction. The temperature is thereafter increase upto 80 degree
Centigrade and is thereafter brought down to 60 degree Cen-
tigrade. At this time Caustic Soda or Methanol in prescribed
qUan.tity are added. At times water is separated from Formal-
deyde. The solution which so emerges is under constant and
E
continuing reaction at this stage. However, this solution is removed
from the reaction vessel and is used in its semi- processed condi-
tion in manufacture of laminated sheets."

From the process of manufacture, narrated above, it is apparent that what
F emerged was solution as a result of continuous reaction and was taken out
from the vessel in its semi-processed condition and was used without
further processing in manufacture of laminated sheets. Since it was not
marketed or sold by the appellants and the solution was captively con-
sumed only, the Department did not levy any duty on it. In 1979, Rules 9,
G 49 and 173(1) of the Central Excise Rules, 1944 were amended the resrilt )-
of which was that even captively consumed goods produced or manufac-
tured became dutiable. Consequently the Superintendent of Central Ex-
cise issued Notice that in view of the amendments in Rules Phenol, ..
formaldehyde and melamine formaldehyde were liable to duty. The appel-
lants contested the notice. It was claimed that the reacting mixtures were
Fi not only unstable having short life but they were not marketable in the form
;
MOTi LAMINATES LTD. v. CCE (SAHAJ, J.) 87

they were obtained in intermediate stage in a continuous process. The A
appellants claimed that the reacting mixture in manufacture went on and
it was complete on formation of laminated sheets by application of heat
and pressure to these goods. The Assistant Collector found that the
· mixture, namely, solution of the resin and water was not stable. But he did
not agree that merely because solutions were not stable it did not mean
B
that the resins produced by the appellants were not goods as if some
stabliser was used to lower down continuous reaction the same could be
put in the market for the purpose of sale. The Collector (Appeals) agreeing
with the finding that solutions were not stable allowed the appeals and held
;>: that an intermediate product in order to be excisable must be a product
known to the market or commercial community. In other words the inter- c
mediate product which came into existence should have been a complete
product known as such to the market. But if something more was to be
done on the product to bring it into a form known to the commercial
community then it could not be treated as excisable goods. The Collector
(Appeals) held that even though it was not disputed that the products were b
used for the manufacture of plastic laminated sheets and synthetic resin
was formed as an intermediate product but it being unstable in a non-·
marketable condition the resin mixture could not be considered as ex-
cisable under tariff item 15(1) of Central Excise Tariff. In further appeal
filed by the Department the Tribunal held that even though it was not
claimed by the Department before the subordinate authorities that the E
intermediate goods produced by the appellants were 'resols' but resins
which occurred in three stage was nothing but resol at 'A' stage and resol
being mentioned in item 15-A of the Tariff Schedule it was covered by the
'chemical nomenclature'. And once the product answered the chemical
description in the entry, it was exigible to duty. The claim of the appellants F
y that it was not goods was thus rejected. The Tribunal further held that
since, "the products manufactured by" appellants, fell under 15-A(l) the
fact that these were not marketed or sold did not make any difference. The
claim that the goods were incapable of being marketed was rejected as
there was no evidence, 'that the product resol' was, 'unstable and not
capable of storage even for a short time'. The Tribunal held, " that in the G
case of resins there were so many varieties and these have wide-ranging
shelf lives ranging from a few days to a couple of months or even more".
Since it was not made out, "that the product" was required to re taken into
immediate use or otherwise it would have been rendered useless or it
would cease to be a resin" it was held that the product even though capable H
)
88 SUPREME COURT REPORTS (1995) 2 S.C.R.

A of, ''further condensation or polymerization" had reached, a definite stage
of manufacture for a definite end-use and, therefore, "had to be held to be
goods". Reason fo/rhis finding was concession of the appellants counsel +
that the resins obtained by the appellants could, "be kept for as long as 15
days".

B What arises for determination, therefore, in the first instance, is
whether resin or resol produced by the appellants can be considered to be
goods for purposes of levy under Act. Even though the Department did
not claim either in the notice issued to the appellants or at any stage before
the appeals were heard by the Tribunal that resins produced by the
C appellants were nothing else than what is chemically known as 'resols' but
the necessity to examine its correctness is obviated as Sri Dave, the learned
counsel for the appellants fairly did not assail the findings rather accepted
it. Resols is specifically mentioned as one of the items in entry no~ 15A of
the tariff schedule. The main entry and Explanation II of it are extracted
below:
D
"Item No. 15A - PLASTICS

Item No. Tariff Description Rate of duty
.15A. Artificial or Synthetic resins and plastics Fifty per cent
E
materials; and other materials and articles ad valorem.
specified below :
(1) ...............................
(2) ...............................
F (3) ...............................
(4) ...............................
Explanation I : ...................
Explanation II. In sub-item (1),
G "condensatio.n, ploycondensation,
poly addition, polymerisation and co-
polymerisation prod~cts" are to be taken to
apply only to goods of a kind produced by
chemical synthesis answering to one of the
following descriptions :'-
H
MOTILAMINATESLTD.v. CCE(SAHAl,J.) 89

(a) artificial plastics, including artificial A
resins;
(b) silicones;
(c) resols, liquid polyisobutylene, and similar
artificial ploycondensation or polymerisation
products." B

Resols, according to Tribunal, is chemical name of resin at 'A' stage. It was
held that phenol resin in course of manufacture due to reaction of mixture
occurred at three stages:

"l. Resol or A-Stage (beginning of Condensation); the resin as C
fluid, soluble, and still contains much water.

2. Resitol or B-Stage (Continued condensation, slight cross-link-
ing) insoluble, rubber.

3. Resitol or C-Stage (final condition of the cured product); D
infusible and insoluble."
I(

In the Glossary of Chemical Tenns: Second Edition: Clifford A Hampel,
Consulting Chemical Engineer and Gessner G. Hawley, Editor: Condensed
Chemical Dictionary, 'Phenol formalde,hyde resin' are described as under : E
"Polymerization occurs in three steps or stages. The first {A-Stage)
is an alcohol-soluble liquid, the second (B- Stage) is semi-solid and
less soluble: the third {C-stage) is hard, cross-linked solid. The
A-Stage form is called a resol."
F
Resol thus obtained in fluid state at 'A' stage was a solution which could
be retained only by addition of some stabliser or retarder. The appellants
used it for manufacturing laminated sheets in semi-finis.bed stage without
any processing or adding any stabliser or .retarder. Even the Tribunal found
that resin at 'Ji.' stage was a solution obtained during process which by itself
could not be used unless some stabliser was added to it. It was not disputed G
that its life, according to appellants, was for two or three days. But even
assuming what was stated by the counsel before the Tribunal that its life
was for 15 days, it could survive only if regulated and controlled tempera- ·
ture was maintained. Otherwise, as has been observed by the Chemical
Examiner it gets itself converted into a jelly which was incapable of any H
90 SUPREME COURT REPORTS [1995] 2 S.C.R.

A use. Therefore, it is very doubtful if on the fact found by the Assistant
Collector, affirmed by the Collector and not differed by the Tribunal, the
resin or resols obtained during the course of manufacture by the appellants +
could be held to be goods.

The duty of excise is leviable under Entry 84 of List I of the VIIth
B Schedule on goods manufactured, or produced. That is why the charge
under Section 3 of the Act is on all, 'excisable goods', 'produced or
manufactured'. The expression 'excisable goods' has been defined by clause
(d) of Section 2 to mean, 'goods' specified in the· Schedule. The scheme in
the Schedule is to divide the goods in two broad categories - one, for which
C rates are mentioned under different entry and other the residuary. By this
method all goods are excisable either under the specific or the residuary
entry. (The word 'goods' has not b.een defined in the Act. But it has to be
'·,.·understood inthe sense it has been used in Entry 84 of the Schedule. That
is why Section 3 levies duty on all excisable goods mentioned in the
.D schedule provided they are produced and manufactured. Therefore, where
the goods are specified in the Schedule they are excisable goods but
whether such goods can be subjected to duty would depend on whether
they were produced or manufactured by ·the person on whom duty is
proposed to be levied. The expression 'produced or manufacture' has
further been explained by this Court to mean that the goods so produced
E must satisfy the test of marketability. Consequently it is always open to an
assessee to prove that even though the goods in which he was carrying on
business were excisable goods being mentioned in the Schedule but they
could not be sUbjected to duty as they were not goods either because they
/ were not produced or manufactured by it or if they had been produced or
F manufactured they were not marketed or capable of being marketed.

The duty of excise being on production and manufacture which
means bringing out a new commodit}r, it is implicit that such goods must
be usable, moveable, saleable and marketable. The duty is on manufacture
or production but the production or manufacture is carried on for taking
G such goods to the market for sale. The obvious rationale for levying excise
duty linking it with production or manufacture is that the goods so
produced must be a distinct commodity known as such in common par-
lance or to the commercial community for purposes of buying and selling.
Since the solution that was produced could not be used as such without
H any further proctessing or application of heat or pressure, it could not be
\

· MOTIIAMINATESLTD.v. CCE[SAHAl,J.) 91

considered as goods on which any excise duty could be levied. A
.- But the learned Additional Solicitor General urged that resin or
solution which was produced by the appellant was technically known as
resols. Reliance was placed on its meaning in the dictionary. The learned
counsel submitted that the tariff schedule has divided the items into
specific and general. Resols being one of the items mentioned under item B
15A it was a specific item, therefore, once it was found that the inter-
mediate goods produced by the appellants were resols then it was exigible
to duty and it could not further be required to satisfy the common parlance
~· test specially because this was a chemical and not a product which is
commonly bought and sold in the market. The learned counsel urged that C
once it was found that it was manufactured or produced then it should be
deemed to have satisfied the test of marketability and consequently it was
excisable goods within meaning of the Act and the Tribunal was justified
in levying duty on it. The learned counsel submitted that marketing
capability depends on nature of goods. The test of marketability and
capable of being marketed could not be applied to such goods as resol and, D
therefore, the submission of the learned counsel for appellants that the
resin or resol could be subjected to duty only if it was found that from raw
materials some new substance was brought out and it was known as such
was not correct as once the intermediate goods produced by the appellants
was found to be resols and it having been mentioned in item No. 15A the E
burden of the Department stood discharged.

Although the duty of excise is on manufacture or production of the
goods, but the entire concept of bringing out new commodity etc. is linked
with marketability. An article does not become goods in the common
parlance unless by production or manufacture something new and different F
is brought out which can be bought and sold. In Union of India & Anr. v.
Delhi Cloth & General Mills Co. Ltd., AIR (1963) SC 791, a Constitution
Bench of this Court while construing the word 'goods' held as under : -

·---( "These definitions make it clear that to become "goods" an article G
must be something which can ordinarily come to the market to be
bought and sold".

Therefore, any goods to attract excise duty must satisfy the test of
marketability. The tariff schedule by placing the goods in specific and
. general category does not alter the basic character of leviability. The duty H
92 SUPREME COURT REPORTS [1995] 2 S.C.R.

A is attracted not because an article is covered any of the items or it falls in
residuary category but it must further have been produced or manufactured
and it is capable of being brought and sold. In South Bihar Sugar Mills Ltd.
& Anr. etc. v. Union of India & Anr. etc., AIR (1968) it was held by this
Court:

B "The act charges duty on manufacture of goods. The word
'manufacture' implies a change but every change in the raw
material is not manufacture. There must be such a transformation
that a new and different article must emerge having a distinctive
name, character or use. The duty is levied on goods. As the Act
c does not define goods, the legislature must be taken to have used
that word in its ordinary, dictionary meaning. The dictionary mean-
ing is that ·to become goods it must be something which can
ordinarily come to the market to be bought and sold and is known
to the market. That it would be such an article which would attract
the Act was brought out in Union of India v. Delhi Cloth and
D General Mills Ltd., (1963) Supp. 1SCR586 =AIR (1963) SC 791".

In A.P. State Electricity Board v. Collector of Central Excise, Hyderabad,
[1994) 2 SCC 428 the Court reiterated the same principle and observed
that marketability was must irrespective whether it was marketed or not.
E Reference has already been made to Indian Cable (Supra). Thus any goods
_ mentioned in the tariff schedule does not attract duty unless it is
marketable or capable of being marketed. The test of marketability was
relaxed in Union Carbide India Ltd. v. Union of India & Ors., (1989) 24
ELT 169 and it was held that, "in order to attract 'excise· duty the iu:ticle
F manufactured must be capable of sale to a consumer". The question that
arose was whether aluminium cans produced by the appellants for the
flashlights manufactured by it was goods. It was held :

"The question here is whether the aluminium cans manufactured
by the appellant are capable of sale to a consumer. It appears on
G the facts before use that there are only two manufacturers 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 an the market. The record discloses
H that the aluminium cans, at the point at which excise duty has been
\

MOTI LAMINATES LTD. v. CCE(SAJW,J.] 93

levied, exist in' a crude and elementary form incapable of being A
employed at that stage as a component in a flashlight. The cans
have sharp uneven edges and is order to use them as a component
in making flashlight cases the cans have to undergo various proces-
ses such as trimming, threading and redrawing. After the cans are
trimmed, threaded and redrawn they are reeded, beaded and B
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 alimentary and
unfinished form in which they exist immediately after extrusion
suffices to attract a market." C
It was explained in Bhor Industries Ltd. v. Collector of Central Excise, 1989
(40) ELT 280 SC :

"It appears to us that under the Central Excise Act, as it stood at
D
the relevant time, in order to be goods as specified in the entry
the first condition was that as a result of manufacture. goods must
come into existence. For articles to be goods these must be known
in the market such or these must be capable of being sold in the
market as goods. Actual sale in the market is not necessary, user
in the captive consumption is not determinative but the articles E
must be capable of being sold in the market or known in the market
as goods."

If was reiterated in Hindustan Polymers v. Collector of Central Excise, 1989
(43) E.L.T. 165: F
"Excise duty, as has been reiterated and explained, is a duty on act
of manufacture. Manufacture under the excise law is the process
or activity which brings into being articles which 'are known in the
market as goods, and to be goods these must be different, iden-
tifiable and distinct articks known to the market as such. It is then G
and then only that manufacture takes place· attracting duty. In
order to be goods, it was essential that as a result of the activity,
goods must come into existence. For articles to be goods, these
must be known in the market as such and these must be capable
of being sold or being sold in the market as such." H
I
I
94 SUPREME COURT REPORTS [1995) 2 S.C.R.
I

'
A The submission of the learned counsel for the Department, therefore, that
merely because the intermediate product manufactured by the appellants
was resols and it is one of the items mentioned under item 1SA it was
exigible to duty ignores the basic and primary test for exigibility of duty.
· The precise argument advanced by the learned Solicitor General of India
B was rejected in Bhor Industries (supra) and the order of the Tribunal in
that case was set aside as "the test of marketability or capable of being
marketed", was not applied by the Tribunal.

Having' 'traced the development of law that any goods produced or
manufactured ipso facto do not attract duty unless they are marketable or
C capable of being marketed, we may now examine the dutiability of goods
captively consumed. Prior to 1979 no duty was levied on such goods. But,
as stated earlier, after amendment of rules 9 and 49 captively consumed
goods become exigible to duty. The rationale for not treating such goods
as excisable was same that since such goods were not brought to the market
D for buying and selling they could not be subjected to duty. But when the
rules were amended a fiction was created that any article produced or
manufactured if captively consumed was statutorily presumed to satisfy the
test of marketability. But this presumption can be rebutted if it is estab-
lished that the article produced and captively consumed was neither goods
nor marketable nor capable of being marketed. The duty is attracted not
E be captive consumption of any· article but it must be a goods within the
meaning of the Act which apart from having a distinctive name and known
as such must be marketable or capable of being marketed. In Bhor In-
dustries (supra) crude PVC films manufactured by the appellants as inter-
mediate product used for captive consumption in manufacture of leather
p cloth, jute matting and PVC tapes were held not to be excisable goods on
the test or marketability. In Collector of Central Excise v. Ambala Sarabhai
Enterprises (1989) 43 ELT 214 the manufacturers produced starch
hydrolysate which was captively consumed and fell under item 1-E of the
Central Excise Tariff. It was held to be goods, no doubt, but it was observed
that from a practical point of view it was apparent that the goods were not
G marketable consequently were not exigible to duty.

It cannot thus be disputed that even if the resin produced by the
appellants are resols as mentioned in item 15A it could not be subjected
to duty. The purpose of specifying the goods in the Schedule is twofold,
H one, the rate on which the duty would be charged and other that if the
\

MOTI LAMINATES LTD. v. CCE (SARAI, J.) 95

goods satisfy the description an,d are covered in the Entry then they are A
liable to pay excise duty. But even in respect of specified goods it could be
established that it was not marketable or capable of being marketable,
therefore, no duty was leviable on it. The finding on this aspect has been
extracted earlier. The Assistant Collector (Excise) found that unless some
retarder or stabiliser was added the unstable solution was not marketable.
B
Even assuming that such solution could last for IS days as found by the
Tribunal that would not help the Department unless it is further found that
it was· a produce which was marketable or capable of being marketed. The
Collector had agreed with the finding of Assistant Collector that without
any further process the solution was incapable of being used for any other
purpose. It further cannot be disputed that even the life for IS days c
depended on maintenance of particular temperature a_nd heat. It cannot,
therefore, be said that the goods were marketable or capable of being
marketed. Since the test of marketability or capable of being marketable
applies even to those goods which are mentioned in the tariff item the
intermediate resin produced by the appellants which are mentioned as D
resols under tariff item no. ISA were not exigible to duty. The finding of

• the Tribunal· that once the product manufactured by the appellants·
answered the chemical description of the product under tariff item ISA it
was assessable to duty whether it was marketable or not was thus not ~ell
founded.
E
In the result, these appeals succeed and are allowed. The question
of law raised by the appellants is decided by saying that resin at 'A' stage
which are chemically known as 'resols' could not be subjected to duty. The
appellants shall be entitled to their costs.

R.A. Appeals allowed.