S. Kalyanam, Vice-President
1. We heard in extenso the arguments from either side on the stay petitions and taking into consideration the nature of the issue and also keeping in mind that in respect of an identical issue C. CE. (Appeals), Trichy, in as many as 20 appeals has remanded the issue and the issue is now pending for consideration by the adjudicating authority and also having regard to the pleas advanced and the ratio of the ruling of the Bombay High Court, we are inclined to think that the matter has to be remanded to the original authority for reconsideration of the issue fresh for the reasons which we propose to give herein. In this view of the matter, by granting waiver of pre-deposit of duty we take up the appeals themselves for disposal.
2. Sh. Lakshmikumaran, the learned Counsel, appearing for the appellant in 415/95 (M/S. Everyday Spinning Mills Ltd.), contended, inter alia, as under:
(i) The issue for consideration is whether the machineries imported by the appellants as capital goods are eligible to avail Modvat credit or not. Modvat credit has been denied by the department on the capital goods on the grounds that in the course of manufacture of yarn from the cotton as such by use of the machineries in question an intermediate product emerges known as "sliver" which is cotton carded/combed and since the silver emerging as an intermediate product is not notified under the Modvat scheme under Rule 57Q, the appellants would not be eligible to take Modvat credit in terms of proviso to Rule 57R(2). Sliver, as such, is not marketable and therefore not excisable and would not come within the mischief of the Act as goods. In such a situation, de hors the emergence of a non-excisable and non-marketable products the use of the capital goods or machineries will have to be related to the emergence of the end product which ultimately in the present case is cotton yarn dutiable and notified under the Modvat scheme.
(ii) Indian Premier Research Institutions sponsored by the Govt. of India namely, SIMA and South Indian Textile Research Association (SITRA) have clearly given opinion that slivers or cotton carded/combed are not either marketed or found capable of being marketed, since practically it would be difficult to transport such cotton carded/combed to the market. The Bombay High Court in the case of Gokalchand Rattanchand Woollen Mills Pvt. Ltd. v. UOI following the ratio of the Supreme Court in the case of Union Carbide India Ltd. v. UOI reported in 1986 (7) ECR 217 (SC) : ECR C 930 SC : 1986 (24) ELT has taken the view that sliver is not excisable and therefore cannot be considered as goods within the meaning of the Act. The Bombay High Court has also referred to the averments of the petitioners before it in the affidavit as to how the slivers remain incohesive and could not be bought and sold in the market and therefore would not be a commodity which is marketable or known as such in the trade.
(iii) A proper construction and interpretation of Rule 57R(2) would clearly bear out that ineligibility to Modvat credit on capital goods would only arise in a situation where the emerging dutiable intermediate product is non-notified under the Modvat Scheme.
3. Shri Arulsamy, the learned DR, contended that Rule 57R(3) clearly specifies that in the event of the intermediate product not being notified under the Modvat Scheme in terms of Rule 57Q, the capital goods would become ineligible to avail Modvat credit. He further submitted that on a representation being made by various manufacturers, the item in question, namely, sliver coming within the mischief of Tariff Heading 5202 was deleted making the Modvat Scheme applicable to the same. He further contended that it is a well settled proposition of law that such amendment at a later point of time which admittedly would cover the goods in question at the relevant point cannot be construed to be clarificatory in nature and therefore operative retrospectively. He further submitted that irrespective of the excisability of otherwise of the intermediate product if the same is not notified under the Modvat Scheme, Modvat credit cannot be availed.
4. We have considered the submissions made before us. The issue for consideration before us is whether the capital goods imported by the appellants are eligible to avail Modvat credit. In all the above cases, the issue is only with reference to the emergence of an intermediate product known as sliver or cotton carded/combed and its marketability except in the case of M/s. KKP Textiles (E/508/95) where the intermediate product is rovings. However, the plea with reference to non-marketability applies on all fours to rovings as well as it applies in the case of slivers. The decision of the Bombay High Court cited supra dealing with carded gilled sliver, an intermediate product, arising in the manufacture of woollen yarn has observed as under:
10. In this connection, I must refer to a recent judgment of the Supreme Court case in the of Union Carbide India Ltd. v. Union of India . That was a case dealing with the manufacture of aluminium cans as an intermediate product, and the same was not marketed at all. It is on that basis the Supreme Court said that they were not "goods" within the meaning of the Act.
11. On the same reasoning as given by the Supreme Court, I would also hold that the item "sliver" is not excisable, inasmuch as it cannot be considered as "goods" within the meaning of the Act. The petitioners have set out in detail as to how that material remains incohesive and it cannot be bought and sold in the market and it is not a commodity which is marketable or known as such in the trade.
12. The department has not placed any material before me to say that this item has a market as such. Mr. Rege relied on one sentence appearing in Exhibit "A" to the petition, being a letter dated 3.9.1979 addressed by the petitioners to the Collector of Central Excise wherein the petitioners have stated that the carded gilled sliver being an intermediate product, the same is not ordinarily sold in the market. Mr. Rege pointed out that the word "ordinarily" would indicate that it might be sold in the market at some point of time or the other. I have seen the petition as a whole. The petitioners have made a categorical statement on bath that the product is not marketable and is not known to the trade as a commodity which is marketable. The onus is heavily on the Department to show as to how the same is marketable. Therefore, in my view it is clear that this intermediate product cannot be considered as "goods" within the meaning of the term under the Act in that event it is not possible for the department to call upon the petitioners to pay excise duty relying on Tariff Item No. 43. I, therefore, pass the following order.
We also take note of the fact that admittedly the research institutions like SIMA and SITRA have issued certificates to the effect that cotton slivers or cotton carded/combed are not either marketed or even capable of being marketed, since it would be difficult to transport such carded/combed to the market. This is also adverted to in the order of CCE (Appeals), Trichy, dated 14.&.1995 produced on behalf of the appellants before us. We also take note of the fact that in as many as 20 appeals the order has been remitted to the original authority for reconsideration of the issue afresh in accordance with law in regard to the marketability of the sliver in question and also as to whether such intermediate products are marketed. It is now fairly well settled that notwithstanding the fact that a particular item or goods finds a place under the Central Excise Tariff Act that by itself would not ipso facto render excisable for the purpose of levy of excise duty. A reference may usefully be given in this context to the the ratio of the Supreme Court in the case of Union Carbide India Ltd. v. UOI . The Supreme Court has clearly held that even though the goods find a place in the Central Excise Tariff unless the goods are marketable or capable of being marketed they would not be excisable for purpose of duty. Therefore, in the present case, keeping in mind the ratio of the Bombay High Court, the opinion expressed by the research institutions and also taking note of the fact that similar issues have been remanded by the CCE (Appeals) to the original authority for consideration of the issue with reference to marketability and further keeping in mind that dealing with an identical issue and having regard to the facts and circumstances and the ratio of the rulings of the Single Member Bench of the Bombay High Court in the case cited supra and the CCE (Appeals) has already remanded the matter to the original authority, we set aside the impugned orders without expressing any opinion on the merits of the issue and remand the matter to the original authority for reconsideration of the issue afresh in regard to its marketability in accordance with law. It would be open to the appellants to put forth all pleas as are open to them under law.
(Pronounced and dictated in open Court.)