Umesh Pencil Processors Pvt. Ltd. Vs. Commissioner of Central Excise, Coimbatore - Court Judgment

Per P.K.Das

The issue involved in these appeals is in a narrow compass and, therefore, all the appeals are taken up for hearing after granting stay.

2. The issue involved in these appeals is as to whether mixture of graphite and clay used captively in the manufacture of pencil lead would amount to manufacture. Original authority classified mixture of graphite and clay under Chapter Heading No.68151020 of the Schedule to the Central Excise Tariff Act, 1985 and confirmed demand of duty along with interest and also imposed penalty. Commissioner (Appeals) upheld the adjudication order.

3. The learned Senior Advocate on behalf of the appellant submits that mixture of graphite and clay is used captively in the manufacture of pencil lead and further used in the manufacture of pencils. He submits that pencil lead and pencils classifiable under Chapter 96 of the Tariff Schedule attract Nil rate of duty. He submits that mixture of graphite and clay has a short life and cannot be marketed and, therefore, it is not excisable. He also submits that both the authorities below accepted that mixture cannot be sold in the market. He further submits that the mixture of graphite and clay merely mentioned in Entry No.242 vide Notification No.6/02-CE dt. 1.3.2002 is not sufficient for the excitability of the goods. He relied upon the decision of the Honble Supreme Court in the case of Collector of Central Excise, Vadodara, Vs United Phosphorus Ltd. [2000 (117) ELT 529 (SC)]. He also relied upon the decision of the Larger Bench of the Tribunal in the case of Markfed Vanaspati and Allied Inds. Vs CCE Chandigarh 2000 (116) ELT 204 (Tribunal). He further submits that the identical issue has been decided by the Tribunal in favour of the assessee in the case of Collector of Central Excise, Bombay Vs Camlin Ltd. vide Final Order No.997/98-D dt. 16.12.98. He, further, submits that they are supplying the pencil lead to M/s.Hindustan Pencils Ltd. and in the case of M/s.Hindustan Pencils Ltd., the Additional Commissioner of Central Excise, Mumbai-III vide adjudication order No.6/KPS/2000 dt. 22.11.2000 dropped the proceedings against which no appeal was filed by the Revenue as per his information.

4. The ld. SDR on behalf of the Revenue reiterates the findings of Commissioner (Appeals). He submits that the appellant enjoyed full exemption under Entry No.242 of Notification No.6/02-CE dt. 1.3.02 till withdrawal of the said notification. Therefore, the duty demanded on the mixture of graphite and clay after withdrawal of the exemption notification is correct. He also submits that mixture of graphite and clay is known in the market and, therefore, it is marketable. He contended that the selling of the goods is not relevant. The question is whether the goods are marketable? He submits that, in the present case, the mixture is marketable but the appellant used captively and, therefore, they are liable to pay duty.

5. After hearing both sides, and on perusal of the records, it is revealed from the order of the Commissioner (Appeals) that the mixture of graphite and clay is not bought or sold in the market. The ld. Advocate submits that this mixture has a short life and used captively in the manufacture of pencil lead which attracts Nil rate of duty. The Commissioner (Appeals) observed that the appellant availed the exemption notification and, therefore, it will be treated as excisable goods. In this context, the ld. Advocate contended that, inadvertently, they availed exemption notification and thereafter they contested the excisability of the goods. It is well settled that no product is goods unless shown to be marketable by the department. In the case of United Phosphorous Ltd. (supra), the Hon’ble Supreme Court observed that mere specification in the Dictionary, Excise Tariff and Drawback Schedule is of no consequence. The relevant portion of the decision of the Hon’ble Supreme Court in the case of United Phosphorus Ltd. is reproduced below :-

4. In the case at hand the Collector (Appeals) has found that the above said three intermediate products came into existence at a certain stage of a multiple stage integrated chemical process leading to the final products and therefore they could not be held to be goods as understood in commercial parlance because they were not marketable. The department had failed in showing if any facility existed for separation of the said three products and whether in the form in which the said three products came into existence in the reaction process were capable of being marketed. The finding of fact so arrived at has not been challenged much less dislodged before the Tribunal. The only argument advanced before the Tribunal was that the three items were mentioned as goods in the dictionary and in the excise tariff and Mercuric Acetate (MA) was also mentioned as one of the items entitled to drawback in Duty Drawback Rules. The Tribunal has observed that these facts and mere mentioning of an item in Drawback Rules with reference to a different context was not enough to satisfy the test of marketability unless it was shown that the intermediate products were capable of being taken to market and bought and sold.”

6. We have noticed that the Tribunal in the case of Camlin Ltd. (supra) rejected the appeal filed by the Revenue on the same goods as there is no evidence whatsoever that the mixture of graphite and clay is at all marketable. We find that, in the present case, both the authorities below accepted the position that the mixture of graphite and clay cannot be bought or sold. The department failed to produce any evidence that the goods are marketable.

7. In view of our discussion above, the demand of duty and penalty cannot be sustained. Accordingly, the impugned orders are set aside and the appeals are allowed with consequential reliefs. Stay applications are disposed of.