Judgment:
ORDER
1. The first petitioner-company manufactures, amongst other things, what is known as V. Link Beltings. In the court of manufacture of V. Link Beltings the company utilises cotton fabrics, rubber compounds and volatile solvents as raw materials. This process of manufacture is an uninterrupted process which goes through various stages of production. At one stage rubber compound is dissolved in volatile solvents to prepare a solution which is applied to cotton fabrics without the aid of power. After application of the rubber compound the cotton fabric is cut into pieces and these pieces are placed one over the other as per requirement and thereafter they are vulcanised to form sheetings of the maximum size of 18'/24'. The process of vulcanising is necessary to impart elasticity to the sheeting which is essential for the further use of such sheetings in manufacture of V. Link Beltings. The said sheeting is thereafter cut into strips on a sheeting machine, slit and punched into links on power press. The said links are studded on studding machine, rivetted and assembled to produce V. Link Beltings having a distinct use, serviceability and marketability. The petitioners say that the said sheeting is not a commodity or article for use or consumption save and except as an article in process of manufacture of V. Link Beltings and the same is distinct from 'cotton fabrics rubberised'. The distinction is not only in the process of manufacture but also in the character, marketability and use. The process of application of rubber compound to cotton fabrics is merely an intermediate stage and does not amount to manufacture of 'cotton fabrics rubberised' nor do the petitioner by applying rubber compound to the cotton fabrics, which is not vulcanised as such, bring into existence are finished article or product having by itself any sale, marketability or serviceability. They say that in order to manufacture 'cotton fabrics rubberised' it is absolutely necessary that cotton fabric with the application of rubber compound as such is vulcanised at that stage. As the cotton fabrics with the application of rubber compound is not vulcanised as such, by the 1st petitioner in the course of manufacture of V. Link Beltings, it cannot be said that the 1st petitioner is manufacturing 'cotton fabrics rubberised' as known to the consumer and commercial community in general. The petitioners say that even the sheetings of the size used by the petitioners at the intermediate stage of the manufacture of V. Link Beltings are not goods or articles which ordinarily come to the market, to be bought and sold and in fact are not marketed not marketable.
2. However some time in 1968, the Inspector of Central Excise made a demand of Rs. 565.35 alleging that the 1st petition was rubberising cotton fabrics and as such duty of excise was payable thereon. The petitioners made their representation before the then Assistant Collector of Central Excise but he too held that the item was subject to levy of excise duty under Tariff Item No. 19 of the first schedule. The petitioners, thereafter filed an appeal before the Collector of Central Excise on March 9, 1970 and the appellate remanded the matter back by his order dated October 9, 1974.
3. After the matter was remanded, a fresh show cause notice dated March 24, 1975 was issued once again contending that the said item was liable for excise duty. To this the petitioners sent a reply through their advocate, by a letter dated March 27, 1975. However, the petitioners paid the amount of duty under protest.
4. It appears that in the meanwhile by a notice dated September 5, 1973, the department demanded duty for this product, at Rs. 26,537.20 for the period from July, 1968 to July, 1973. This resulted in an order dated November 19, 1974. The petitioners had pointed out by their reply dated September 10, 1973, that no duty could be levied on this product. However, the demand was confirmed by the Assistant Collector, by his order dated November 19, 1974. Thereafter the petitioners preferred an appeal to the appellate Collector but by his order dated July 26, 1975, he too confirmed the order of the Assistant Collector.
5. In between, a notice dated January 29, 1974, from the Superintendent of Central Excise again demanded excise duty for the same product for the period from August, 1973 to December, 1973, amounting to Rs. 8,561.58. A reply was given to this show cause notice but the department proceeded with this earlier order of the Assistant Collector. The said order is at Ex. K to the petition. The Assistant Collector of Central Excise by his order dated August 27, 1975 rejected the contention of the petitioners. Thereafter the respondents issued a notice dated the September 5, 1975 demanding a sum of Rs. 26,537.20 being the amount claimed earlier in their show cause notice and they threatened action if the amount was not paid within ten days.
6. Thereupon the petitioners filed this petition on September 9, 1975 and since then of course the matter is pending in this Court.
7. Mr. Hidayatullah appearing for the petitioners pointed out that these are more than one judgments of this Court as also of other High Courts that as the item is not marketable or saleable, it cannot be considered as goods for the purpose of charging any excise duty. There is one unreported case being Misc. Petition No. 401 of 1963 Cosmos India Rubber Works Pvt. Ltd., and another v. G. Koruthu, Collector of Central Excise and two others decided by Mr. Justice Tarkunde, as he then was. The judgment is dated March 10, 1966. The relevant portion of the judgment is as follows :
'Section 3 of the Central Excises and Salt Act provides the levy of duties of excise on all 'excisable goods which are produced or manufactured in India'. An intermediate product in the process of manufacture, which is not marketable and has no distinctive use except as a material used in a further manufacturing process, cannot be held to be 'excisable goods'. This view is sanctioned by the decisions of the Supreme Court in Union of India and anr. v. Delhi Cloth and General Mills and Ors. : 1973ECR56(SC) .'
8. In any event, there is a recent judgment of the Supreme Court being the case of Union Carbide India Ltd., v. Union of India and others, reported in : [1987]165ITR1(SC) . The relevant portion of the judgment reads as follows :
'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 flash-lights 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 redrawing 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 after the 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 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 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.'
9. Mr. Hidayatullah, therefore, submitted that the legal position as clear and the department has not shown that this product is marketable. Therefore, he submitted that no excise duty could have been levied on this product. As against this Mr. Rege appearing for the department drew my attention to a case of M.R.F. Ltd. v. Union of India, reported in : 1985(22)ELT5(Bom) and he submitted that, that judgment can be applied and it can be said that if the petitioners are manufacturing this particular item, it must necessarily be liable for excise duty, if it is covered under any of the items of Tariff. I am afraid that that judgment cannot be applied as in that judgment there is an express finding to the effect that the article was salable and marketable.
10. Mr. Rege then drew my attention to a statement made by the Inspector of Central Excise which is annexed to the affidavit of one Shri. Parthasarathy, Assistant Collector of Central Excise, dated August 22, 1977. In that the Inspector of Central Excise has recorded that his enquiries regarding marketability of the vulcanised fabrics, made with c certain parties at Nagdevi Street at Bombay, revealed that the product could be marketed and it can be used for body building of vehicles and also for heavy machinery etc. However, his enquiries also revealed that such fabrics are not stored as there is no general market for such product on 18' x 24'. The Inspector also stated that the merchants have expressed their inability to give their opinion in writing. Mr. Hidayatullah says that this is hearsay opinion and it, therefore, cannot be looked into. I am inclined to agree with Mr. Hidayatullah. The Inspector himself does not know anything. He relies on certain information for which again there is no basis. In the result, the respondents have no answer and, therefore, this petition will have to be allowed.
11. I, therefore, pass the following order :
Rule is made absolute in terms of prayers (a), (b) and (c). The bank guarantees given by the petitioners to stand discharged. The sum of Rs. 1,040.26/- paid by the petitioners on different dates for the period from February 24, 1968 to December 15, 1968 and from February 16, 1968 to January 31, 1969 and for the period from February to March, 1969 shall also be refunded by the department to the petitioners. The amount should be refunded within a period of two months from to-day.
12. In the circumstances, there will be no order as to costs.