Judgment:
1. The point of dispute in this case is whether the following asbestos products, which arise in the appellants' factory at an intermediate stage and are used by them captively for further manufacture of automative brake linings and clutch facings, are liable to central excise duty under Item 22F(4) of the Tariff :- 2. Item 22F of the Central Excise Tariff, as in force during the material period, reads as under :- "22-F. Mineral fibres and yarn and manufactures therefrom, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power, the following, namely : (3) any other mineral fibre or yarn, whether continuous or otherwise, such as, slag wool and rock wool; (4) other manufactures in which mineral fibres or yarn or both predominate or predominates in weight.
3. We have heard both sides and given our earnest consideration to their submissions and the record. The appellants pressed for only two arguments before us, which we deal with in the succeeding paragraphs.
4. The appellants contend that the subject 'intermediate products' were not fully manufactured and hence they could not be termed 'manufactures' under Item 22-F(4). They developed this argument further and pleaded that the subject products were not even 'goods' as they were neither sold nor were they capable of being sold. In support of their argument, they placed heavy reliance on the Supreme Court judgment in the case of Aluminium Cans or Torch Bodies reported at 1986(24) ELT 169(S.C.) - Union Carbide India Ltd. v. Union of India and Ors. In respect of asbestos rings, the appellants stated specifically that these were brittle and fragile articles and hence not marketable in that state. They drew our attention to affidavits of two dealers in asbestos products which state that the subject products were not sold in asbestos trade. They also relied on the affidavit of their Senior Manager-Technical Sales which is to the effect that the subject products were generally capable of only one application - that of manufacture of brake linings and clutch facings. The appellants explained their point with the help of three drawings showing the detailed process of manufacture of each of the disputed products. They also showed us the samples of the disputed products.
5. On careful consideration, particularly after seeing the process drawings and the samples of the products, we find that the facts of the Aluminium Cans case aforesaid and those of the present case before us are clearly distinguishable. We reproduce below paragraph '7' of the Supreme Court judgment in the Aluminium Cans case : "7. 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 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 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 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 fined to the case. We find it difficult to believe that the elementary and unfinished form in which they exist immediately after extrusion suffices to attract a market. The appellant has averred in 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 the respondents to the instance when aluminium cans were ordered by the appe Uant 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 trans- action 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 cans 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." It is quite evident from the above extract that the decisive factor in the Supreme Court judgment was the crude and elementary form of the aluminium cans in the Union Carbide case. There is no such factor present in the case before us. The process drawings show that the duty was sought to be levied by the department not at the first or the second stage but at the 4th stage of manufacture in the appellants' factory. The samples of the goods shown to us in the Court, which arose after the said 4th stage, were in a finished form. There was nothing elementary or crude about them. As asbestos products, they were fully manufactured. Nothing further was required to be done to them to make them fully manufactured asbestos products. After the 4th stage of manufacture, they were taken for further manufacture of auto-motive brake linings and clutch facings which are separately identifiable motor vehicle parts. In that sense, the products may be intermediate products in the appellants' factory. But as identifiable asbestos products, their production was complete after the 4th stage of manufacture. The appellants seem to be confusing the asbestos products with the ultimate products, namely, brake linings and clutch facings.
No doubt, at the 4th stage of manufacture, the rings and the fabrics could not be called fully manufactured brake linings and clutch facings. We are not concerned with brake linings and clutch facings but with different products under a different item of the tariff. There are two separate and distinct entries in the tariff for motor vehicle parts (34A) and for mineral fibres and yarn and manufactures therefrom (22-F). Since asbestos is indisputably a mineral fibre, asbestos products come under the entry 22-F before they are taken for manufacture into another identifiable product, namely, motor vehicle parts. The appellants' contention that asbestos rings were a brittle and fragile Article-and hence not marketable is simply not true. We examined the sample of the rings very carefully. Asbestos fibre is a Very strong material. If the ring is allowed to fall on the floor, nothing would happen to it. We found it neither brittle nor fragile. It was perfectly capable of being handled and transported for marketing.
It would, no doubt, suffer damage if deliberately crushed or broken by application of force. But even in that sense it was far less brittle than card board and far less fragile than glassware. If card board and glassware could be marketable, why not the asbestos rings.
6. The two dealers whose affidavits the appellants have placed on record are not the right persons to give opinion on the type of products with which we are concerned in this case. The disputed products are industrial goods. Only industrialists engaged in the manufacture of brake linings and clutch facings would be interested in them and not a dealer who sells commonly used asbestos products in the market. The words 'raw materials', 'intermediate goods' and 'finished goods' have a relative meaning in the industry. Not every industrialist can afford to have all the processes of manufacture under one roof.
There is a vast sector of ancillary units in many industries. Often the finished product of one manufacturer becomes the starting material of the other manufacturer. This is particularly true in the engineering industry of which the vast motor vehicle parts industry is a segment.
Any small scale or medium scale manufacturer of brake linings and clutch facings would be interested in buying the asbestos rings and asbestos fabrics as his starting materials if he does not have the resources to start from the stage one (the asbestos fibre stage). The affidavit of the appellants' Senior Manager - Technical sales does not prove anything to the contrary but only supports this conclusion. The fact that the appellants 'do not sell their asbestos rings and asbestos fabrics is immaterial. Central Excise duty is a tax on manufacture or production and not on sale [1978 ELT 3 336 (S.C.) - South Bihar Sugar Mills Ltd. etc. v. U.O.I. and Ors. ]. The material point is that their asbestos rings and fabrics are marketable products, though marketable to a particular Section of the industry only. The products having industrial application do not cease to be 'goods' for that reason.
Otherwise, a large portion of the Central Excise Tariff would be rendered negatory. The observations of the Hon'ble Supreme Court in paragraph '6' of their aforesaid judgment in the Aluminium Cans case that "it does seem to us that in order to attract excise duty the Article manufactured must be capable of sale to a consumer", refers to a consumer who has use for the particular goods and not to the common man. The articles in dispute before us are high value finished asbestos products and if the terms offered are right the smaller manufacturers of brake linings and clutch facings would certainly be interested in buying them. We, therefore, find no substance in the appellants' argument that their asbestos rings and fabrics were neither fully manufactured nor 'goods'.
7. The second argument of the appellants was that Rules 9 and 49 of the Central Excise Rules, 1944 must be reasonably interpreted to avoid duty at every stage of manufacture. We find that the department is not seeking to charge duty at every stage of manufacture. There are as many as of or 10 stages of manufacture in the appellants' factory. The department is seeking to charge duty only at two stages - (1) when finished and identifiable asbestos products merge, answering the description of Item 22-F(4) of the tariff and (2) finally at the last stage when identifiable motor vehicle parts (brake linings and clutch facings) emerge, answering the specific description of Item 34A of the Tariff. Indeed, prior to the 4th stage, there are other stages also, like manufacture of asbestos yarn, in the appellants' factory. Asbestos yarn is a specifically named product under Item 22-F(2). But we find in the proceedings before us that the department is not seeking to charge duty at the stage of asbestos yarn. It is seeking to charge duty only at the final stage of asbestos manufactures under Item 22-F(4) of the Tariff. The facts, therefore, belie the appellants' contention.
8. In sum, we find that the asbestos rings and asbestos fabrics in dispute before us are finished and identifiable asbestos products. They are high value articles and quite capable of being marketed to interested industrial users. They directly answer the tariff description in Item 22-F(4). They are, therefore, 'goods' and are liable to duty.