1. M/s. SWIL Limited have filed the present appeal being aggrieved by the Adjudication Order No. 2/2001, dated 10-2-2001 under which the Commissioner has demanded Additional Excise duty and has imposed penalty treating the product classifiable under Heading 54.09 of the Schedule to the Central Excise Tariff Act.
2. Dr. Shri R.N. Bajoria, Senior learned Advocate, mentioned that the Appellants manufacture Phosphor Bronze Wire Cloth, Stainless Steel Wire Cloth and Synthetic Wire Cloth for use in Foundrinier paper making machine falling under Heading 59.09 of the Schedule to the Central Excise Tariff Act; that in September, 1992 a dispute was raised by the Department that in the process of manufacture of "Dandy Covers", etc., fabrics falling under Heading 54.09 of the Tariff was being manufactured and captively consumed which had culminated in the impugned Order demanding duty and penalty. The learned Senior Counsel submitted that Shri Samir Sarangi, General Manager works, had given process of manufacture in his Affidavit dated 15-6-1992 as under : "The polyester yarns are wrapped on the weaving loom on the wrap beam; the wrap yarns are taken in on the loom through the heedles and reed of required mesh; the ends taken in through the reed and heedles are tied up to the cloth beam; through the shedding motion, the heedle frames kept on going up and down enabling the weft yarns to pass through the divided group of wraps where the number of weft yarns kept as per the desired quantity per unit (this process is called weaving); the weaving continues to the desired length and then the woven lot is taken out of the loom which is called greig fabric; the greig fabric after inspection, is sent for heat treatment to stablise the meshes; the greig fabric as woven on the loom turns into the synthetic wire cloth which is then cut to the required sized in length and width; then the fabric is sent to Seaming Department where the two open ends are joined by Splicing Method; as the fabric again becomes endless and again it is put on the Stretching Machine for finishing operations and then packed." 3. The learned Sr. Counsel mentioned that the fabric as woven on the loom turns into a saleable product only after heat setting before which a fabric cannot be used or sold because technically it will have no dimensional stability; that the test of marketability has to be satisfied before excise duty can be demanded. He relied upon the decision in the case of C.C.E. v. United Phosphorous Ltd., 2000 (117) E.L.T. 529 (S.C.) wherein the Supreme Court considering the liability of intermediate products to excise duty has held that the intermediate goods would not be subjected to duty unless they satisfy the test of marketability. Reliance has also been placed on the decision in the case of C.C.E. v. Ambalal Sarabhai Enterprises [1989 (43) E.L.T. 214 (S.C.)]. He also submitted that the burden of proof of marketability is on the Department; that the said onus of proving marketability has not been discharged by the Department; that the Commissioner has merely given his findings in the impugned order that the goods finds a specific mention in the Tariff and has a clear distinct identity as fabrics and as has been used for further manufacture, the goods is capable of being sold in the market. The learned Senior Counsel contended that it is well settled by the decisions of Supreme Court that mere mention in the Tariff will not attract duty unless goods satisfy the test of marketability.
4. He also submitted that the show cause notice mentions two processes undertaken by them whereas the Commissioner has given finding only about one process; that for the purpose of classifying any production under Heading 54.09 the fabric must have undergone two or more processes. He further mentioned that the demand was raised pn 25-9-92 for the period from September, 1987 to June, 1992 and as such for most of the period demand is barred by limitation, being beyond the period of six months; that merely because they did not submit classification list in respect of the impugned goods, it cannot lead to conclusion that there was suppression of any material fact on their part. He relied upon the decisions in the following cases -Lubri-Chem Industries Ltd. v. CCE, Bombay - 1994 (73) E.L.T. 257 (S.C.)Tamil Nadu Housing Board v. CCE, Madras - 1994 (74) E.L.T. 9 (S.C.)Cosmic Dye Chemical v. CCE, Bombay - 1995 (75) E.L.T. 721 (S.C.) (iv) Pushpam Pharmaceutical Co. v. CCE, Bombay - 1995 (78) E.L.T. 401 (S.C.).
5. The learned Sr. Counsel also mentioned that the Additional duty of Excise is imposed under the Additional Duties of Excise (Goods of Special Importance) Act in lieu of sales tax [AIR 1989 SC 222] and as there will be no sales tax on goods captively consumed, no duty can be demanded from them in respect of impugned goods which has been captively consumed by the Appellants; that if the Additional duty has been demanded under Additional Duties of Excise (Textiles and Textiles Articles) Act, no duty is demandable as the duty was leviable @ 15% of the Basic Excise duty which was nil during the first three financial years, 1987-88 to 1989-90; that moreover duty has been worked out on the basis of the value of the finished goods; that no penalty under Rule 173Q of the Central Excise Rules can be imposed as held by the Delhi High Court in Pioneer Silk Mills v. Union of India - 1995 (80) E.L.T. 507 (Del.) and Begani Dyeing Mills P. Ltd. v. CCE, Surat - 2001 (136) E.L.T. 508 (T).
6. Countering the arguments, Shri A.K. Mondal, learned D.R., reiterated the findings as contained in the impugned order and emphasised that the fabric is marketable as there is no claim by the Appellants that it has any short shelf life or it cannot be brought to market for being sold; that it is not required to satisfy the test of marketability that the goods must be sold and purchased in the market; that what is required is that the goods should be capable of being sold in the market as such; that extended period of limitation for demanding duty is invocable as the Appellants had not disclosed the fact of its manufacture and captive use to the Department by way of filing the classification list.
7.1 We have considered the submissions of both the sides. The Heading 54.09 of the Central Excise Tariff applies to "Fabrics of man-made filament yarn (including fabrics obtained from materials of Heading Nos. 54.06 and 54.07 but excludes fabrics covered under Heading No.54.12), - (b) Subjected to the process of bleaching, dyeing, printing, shrink-proofing, tentering, heat-setting, crease resistant processing or any other process or any two or more of these processes with the aid of power or steam." 7.2 The Adjudicating Authority has considered the question as to whether any fabrics comes into existence at the intermediate stage. He has given his findings as under after perusing records and Affidavit submitted by the Appellants - "Now, in fact the point of determination is whether any fabrics comes into existence at the intermediate stage and if so, what is the correct classification of such intermediate fabrics. From the records and the affidavit submitted by them shows that polyester yarn is used as input on the weaving loom process (a). The greig fabric emerges at process (f) after weaving and such fabrics were subjected to heat treatment at process (g) where as the finished fabric (Foundrinier Synthetic cloth or Dandy cover/roll cover as it may be) comes into existence only at process (j) after seaming and further stretching operation. Therefore, the emergence of intermediate fabrics as at process (f) and (g) is a fact. As per Encyclopedia of Textiles (2nd edition) of American Fabrics Magazine P 531 a "Greig Fabric" is a grey fabrics and when the blemishes of such fabrics after weaving are remedied the materials is converted into finished state. According to the affidavit such remedial action is taken at process "G". Hence, the grey fabrics or greig fabrics comes into existence and the same is again used for manufacture of foundrinier Synthetic Cloth for industrial use." 7.3 It is an admitted position that Greig Fabrics comes into existence which is also given heat treatment. As such there is nothing wrong in the findings of the Commissioner that fabrics falling under Heading 54.09 of the Tariff comes into existence. All the requirements of the Heading 54.09 are complied with as the fabrics is man-made filament yarn; woven on looms other than handlooms and is subjected to the processing of heat setting. There is no force in the submission of the learned Senior Counsel that two or more processes should be undertaken for the fabrics to be classified under Heading 54.09. A perusal of condition (b) mentioned in Heading 54.09 reveals that the fabrics should be "subjected to the process of bleaching, dyeing, printing, shrink-proofing, tentering, heat-setting, crease resistant processing or any other process or any two or more of these processes with the aid of power or steam." The phrase "any two or more processes" means that if two or more processes are carried out even then the fabrics would remain classified under Heading 54.09. It does not mean that for being classified under the said Heading the fabrics must be subjected to two or more specified processes. This is also apparent from Note 3 to Chapter 54 of the Tariff which reads as under :- "In relation to products of heading Nos. 54.09, 54.10, 54.11 and 54.12, bleaching, dyeing, printing, shrink-proofing, tentering, heat setting, crease-resistant processing or any other process or any one or more of these processes shall amount to 'manufacture'." We thus agree with the findings of the Adjudicating Authority that the fabrics which emerges is classifiable under Heading 54.09 of the Tariff.
8. Now, we come to the question of marketability of the impugned product. It has been held by the Supreme Court in U.O.I. v. Delhi Cloth & General Mills, 1977 (1) E.L.T. (J199) (S.C.) that "To become" "goods" an article must be something which can ordinarily come to the market to be "bought and sold." The goods should be capable of being bought and sold. The fact that the goods is not actually sold and is entirely consumed captively is not material. It has been held in the case of A.P. State Electricity Board v. C.C.E, 1994 (70) E.L.T. 3 (S.C.) that "The 'marketability' is thus essentially a question of fact to be decided on the facts of each case. There can be no generalisation. The fact that the goods were not in fact marketed is of no relevance." The marketability test is not related to the form or shape or condition of the goods concerned but it is the commercial identity of the goods and whether it is capable of being bought and sold in the market. The Appellants have merely mentioned that the impugned fabric of polyester yarn is not goods as they are neither capable of being bought and sold in the market nor is known to the market. Merely making such a bald statement without giving any reasons and relying upon decided case laws would not make the product in question 'not marketable.' Fabrics made of polyester yarn is not such a product which cannot be brought to the market for being bought and sold. There is nothing on record to show as to why the said fabrics made of polyester yarn is not capable of being brought to the market. We, therefore, hold that the impugned product is marketable. The extended period of limitation for demanding duty as provided under proviso to Section 11A(1) of the Central Excise Act is invocable as the fact of manufacture of the impugned products was not disclosed to the Department. It was the duty of each and every as-sessee to file a classification list under Rule 173B of the Central Excise Rules, 1944 at the material time declaring the goods manufactured by them. As the said fact was suppressed from the Department and goods were cleared without payment of duty, demand of Central Excise duty can be made for extended period in the present case.
9. We, however, agree with the learned Senior Counsel that no penalty can be imposed in view of the decision of the Delhi High Court in Pioneer Silk Mills supra. We, therefore, set aside the penalty. The appellants have claimed that no duty was chargeable in the first three financial years out of the period for which demand has been confirmed as the Basic Excise duty was nil. This aspect needs verification by the Adjudicating Authority. We, therefore, remand the matter to the Adjudicating Authority to examine the said aspect only after affording a reasonable opportunity of hearing to the Appellants.