Marketability not proved by stability alone

EXPERT EYE

The controversy regarding marketability does not seem to end. There are more and more refinements in new judgments, but the conclusion is far from settled.

Chemicals seem to be the most fertile subject for controversy regarding marketability. Among all the the Supreme Court judgments on the subject, chemicals take the pride of place.

The reason is that one chemical after refinement becomes another chemical and so on. Almost all of them are identifiable chemical products having established formula, stability of existence and long enough shelf-life.

So in theory all such chemicals become intermediate products and excisable goods in the excise sense, even in an integrated manufacturing process.

There is no problem so long as the final product is sold in the market on payment of excise duty. But the moment the final product is exempted, all intermediate products have to discharge the liability to pay duty.

This is what has happened when a chemical, named Butachlor used in fertiliser, was exempted. The result was that the two intermediate chemicals, DECA and CMBE, were required to pay duty and the revenue department asked for the payment on the ground that they were identifiable as organic compound, were stable, had shelf-life and were, therefore, marketable and excisable.

The case was decided in three successive stages and it had a see-saw fate until it reached the Supreme Court. The latest is the Gujarat Narmada Valley Fertiliser Company Ltd vs Collector of Excise and Customs case, where the Supreme Court delivered its judgment on April 26, 2005 ( 2005 (184) ELT 128 (SC)).

It has been held that marketability cannot be established by merely proving that the goods are stable and have a long enough shelf-life. Commercial existence in the market has also to be proved. Interestingly, the Supreme Court has given several judgments on the subject.

In the case of Bhor Industries, (1989(1)SCC602), crude PVC sheets were held as transient in that they were meant for fusing with leather cloth in high temperature and so they were not marketable not having a long enough shelf-life.

So the question arose about shelf-life as to how long is long enough to make it marketable and how short is short enough to call the goods transient.

The Supreme Court has given answer to this question in the Commissioner of Central Excise vs Ambalal Sarabhai case (1989 (43) ELT 214 (SC)), saying this question has to be approached in a practical or "pragmatic" manner.

The court said it was true that the goods with unstable character could be theoretically marketable if there was a market for transient type of articles.

But one has to take a practical approach. The fact is such starch hydrosylate is never marketed, it is highly improbable that such unstable goods are capable of being marketed.

So the Supreme Court has come to admit that if the producer of the goods can prove that the goods are unstable in character, that is to say, they have a very short shelf-life, and they can also prove that they have never been marketed in actual practice then this evidence is clinching to prove that they are not marketable.

In another contemporaneous judgment in the Union of India & Ors vs Sonic Electrochem (P) Ltd case (2002(7) SCC435), the issue before the Supreme Court was whether the plastic body of an electro mosquito repellent was marketable.

The court held that the essence of marketability was neither in the form nor in the shape or condition in which the manufactured articles were to be found, it was the commercial identity of the article known to the market for being bought and sold, which only can prove marketability.

In view of the above judgments, the Supreme Court concluded in the Gujarat Narmada case that these two intermediate chemicals might be identifiable organic chemicals and even had some shelf-life but they could not be treated as marketable.

The mere proof of stability, that is, shelf life, does not prove marketability. "Something more would have to be shown to establish that DECA and CMBE were known in the market as commercial products," held the court.

On the above ground the apex court held that these two intermediate goods are not marketable and therefore not excisable. We find that there is a touch of contradiction in the principles laid down in the judgement.

On the one hand, the Supreme Court says "actual sale in the market is not necessary but the article should be capable of being sold in the market or known in the market (Bhor Industries).

And on the other hand, it says "these essence of marketability is the commercial identify of the article known to the market for being bought and sold. (Sonic Electrochem & Gujarat Narmada).

This is contradictory. If there is a commercial identity required to prove marketability, then how can this commercial identity arise if actual sale is not necessary in the market? Within this limitation, we may try to summarise the whole principle in as much cohesive manner as possible.

Intermediate goods, that is, goods captively consumed, are also excisable, if they are marketable.

To be marketable, they have to be stable products and have shelf-life.

Shelf-life will vary in individual cases. Generally, it should not be too short but long enough to sell and purchase and use in the next factory.

Shelf-life alone is not enough to prove marketability.

Actual sale in the market is not compulsory.

But there has to be a commercial identity of the article known to the market for being bought and sold.

The burden of proof for the item above is on the revenue department.

smukher2000@yahoo.com