TMI Blog1985 (3) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... e created and are consumed and used in the same factory. The first intermediate substance that comes into existence is calcium carbide. The raw materials used in the manufacture of the calcium carbide are limestone, charcoal, coke and other materials. A second intermediate product is also created which M/s. ILAC call an impure form of acetylene gas. After the induction of new section 4 of the Central Excises Act, 1944, on 1-10-1975, the petitioners declared the price of the calcium carbide and the acetylene used in captive consumption. They claimed that they did so under a mistake of law or misapprehension of the legal position. After certain correspondences between the central excise and the manufacturers, two orders were passed by the Assistant Collector - one dated 20th May, 1978 and another dated 23rd May, 1978, rejecting the claim of the factory to exemption on calcium carbide and acetylene gas from payment of duty. M/s. ILAC filed two appeals both dated 17th August, 1978 before the Collector of Central Excise (Appeals), Bombay in respect of the two orders of the Assistant Collector. The Collector passed the order dated 20th September, 1980 rejecting both appeals of the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with rule 9 and rule 49 of the Central Excise Rules, 1944, duty cannot be levied until the goods are removed from the factory. 5. The learned counsel argued that under the Carbide of Calcium Rules, 1937, strict provisions have been made with respect to the importation, transport and storage of calcium carbide. He referred to rule 20 of these rules which provides that : No carbide shall be kept at any place, with or without a licence, unless it is commercially pure , that is unless it contains no impurities which would render the gas evolved, either alone or in admixture with air, liable to ignite spontaneously. 6. He also referred to rule 21 which allows that no licence would be required for the storage of calcium carbide in any quantity not exceeding 5 Ibs. if it is kept in prescribed receptacles each containing not more than 1 lb. The learned counsel said that the rules define prescribed receptacle as - (i) Made of metal but has no copper in its composition, (ii) Hermetically closed at all times except when its contents are being placed within it or withdrawn from it, and (iii) bearing a stamped, embossed, painted or printed warning exhibiting in conspi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es contain calcium carbide but unless a calcium carbide is of the required purity, percentage and standard, it will not qualify to be classed as calcium carbide, and, therefore, cannot be assessed to central excise duty. 11. He reiterated that there was no manufacture of calcium carbide if we take the true meaning of the material calcium carbide since their product does not conform to any of the government standards and commercial acceptance. He also proposed that even if there was a manufacture, the product cannot be goods because they cannot be treated and no one will accept their product as calcium carbide. A calcium carbide to be classed in the category of goods must be saleable and must be offered for sale. There is none of these factors and the category of goods will not accept their product, the purity being only about 50% and the rest mostly phosphates; the gas yield is much below the Indian Standards. The Indian Standard is a standard that tells us to call a product by a particular name. If a product can meet this standard prescribed by the Indian Standard then we call that product by that name which the standard gives it. Otherwise we will not call the product by that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided on 10-5-1976 [1978 E.L.T. (J 180) (Cal.)]. The court ruled that to become dutiable as one of the items mentioned in the First Schedule of the Central Excise Act, the transformation of the materials must result in making the article as one mentioned in the First Schedule of that Act. 16. This Tribunal gave a decision that to become dutiable there must be a manufacture and the burden of proving that manufacture has taken place and that the tariff entry has been satisfied are on the taxing authority [Bhor Industries Ltd., Bombay v. Collector of Central Excise, Bombay: Appeal No. ED(SB)(T)A. No. 1278 decided on 21-12-1982 (1983 E.L.T. 179)]. Although he quoted the New Delhi High Court decision in M/s. J.K. Cotton Spinning v. Union of India, Civil Writ No. 1858 of 1981 decided on 11-1-1983 [1983 E.L.T. 239 (Del.)], the learned Counsel of M/s. ILAC said that he did not want to discuss rule 9 and rule 49 and the retrospective effect given to the amendments carried out in 1982. He, however, referred to Trade Advice 68 of 1981 by the Central Board of Excise Customs which said that acetylene gas falling under item 14H produced in a continuous and uninterrupted process of manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... names. Nor are they acceptable under the names by which they are called. The fact that their sub-standard goods do not come up to the normally accepted standard or purity for similar products has not been denied by the central excise themselves. Trade Advice No. 83/81, dated 24-8-1981 was like the previous one and clarified that carbon dioxide gas produced in a factory would fall outside the purview of item 14H C.E.T. so long as the gas did not conform to the marketable grade as prescribed in the ISI specifications. Such a gas would be properly classifiable under item 68. 20. The various judgments that he has quoted are all in favour of saying that the goods, calcium carbide and acetylene should not be assessed to excise duty and that, therefore, the action of the central excise was wrong and needs to be set aside and the duty collected from the petitioners should be refunded. 21. The learned counsel for the Department Mrs. Zutshi opened her attack by quoting the decision of the Supreme Court in Union of India v. Delhi Cloth Mills Civil Appeal No. 168 to 170/1960, decided on 12-10-1962 [1977 E.L.T. (J 199) (S.C.) = AIR 1963 S.C. 791] to say that there must definitively has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill work to the end that these two products will be seen to be excisable. Sub-section (d) speaks only of excisable goods specified in the First Schedule, not of goods specified in accordance with the Indian Standards or any standards or any other laws or rules and regulations that may be in force in the country. It is enough that a product must generally answer to the generic description contained in the Schedule for it to attract the Central Excises Act. 23. Item 14AA under which calcium carbide is assessed does not have a description as we find in item 19, Cotton Fabrics which requires that cotton should predominate by weight in the fabric or that such fabric should contain more than 40% by weight of cotton and 50% or more by weight of non-cellulose fabrics or yarn or both. Nor do we have an explanation like item 22F which requires that a manufacture under this item should have mineral fibres or yarn predominating in weight. Similarly, item 18D, jute yarn requires that jute should predominate in weight in the yarn. There are several other items which have this predominance test; but the item that covers calcium carbide does not have it; and we cannot import predominance in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce an item comes into existence with a definitive identity, the process and manufacture is complete and it cannot be said that the product is not a finished one within itself. 26. The learned Mrs. Zutshi read the 1983 decision of the New Delhi High Court which upheld the validity of the retrospective amendment of rule 9 and rule 49 of the Central Excise Rules, 1944. The terms issued out and removed in rule 9 and rule 49 must conform to the intention of the amended rules. She argued that so long as the goods are identifiable and capable of removal, it is enough to make them excisable. She said that an attempt was made by M/s. ILAC to sell the goods to Indian Oxygen. Even though the sale did not materialise, the goods were capable of being sold. She could not understand the argument about the absence of storage because there was no need to store these materials as they were immediately utilised in the manufacture of other goods. Storage becomes crucial when transport and storage become necessary for the purpose of future transaction and sale. Since there was neither transaction, nor sale, the factory did not have to store them. But this would not mean that the calcium carbide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its scope in paragraph 1.1. In paragraph 3.1. this standard lists three qualities, namely, quality (A), quality (B) and quality (C). Quality (C) was the most inferior. She pointed out that in Table 3, the standard lists the characteristics and requirements for all three qualities as well as the method of test which is detailed in Appendix C of the Indian Standard. The standard even specifies the sieve dimension to determine the size of the grades. This recognizes that there will be and there can be different sizes and different qualities of calcium carbide and not just one so-called commercial grade calcium carbide. Indian Standard : 308 of 1977 is similarly a specification for dissolved acetylene gas. The standard prescribes quality tests only because it recognizes that qualities will differ. 30. The learned Counsel for M/s. ILAC replied that excisability must rest only on the fact that the goods are excisable. The learned counsel for the department has made a laborious discussion on grades but he would like to point out that the quality of calcium carbide is specified only because the goods are made in India. In paragraph 0.2, the Committee of the Indian Standard expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese things and for their proper storage. Both calcium carbide and acetylene are very dangerous substances and great fire risks unless stored properly and in a manner that will prevent their coming into contact with substances that are capable of starting the dangerous reactions which leads to explosion or fire. He quoted a large number of court judgments also which he said supported his arguments. Since it is a matter of whether the calcium carbide and the acetylene as produced in M/s. lLAC s factory are capable of being brought within the central excise coverage, we shall first deal with the court cases which, the learned Dr. Kantawala says, prohibit his goods being considered excisable. 32. The first judgment we will discuss is the Indian Vegetable Products v. Union of India (Misc. Petition No. 922 of 1974) - [1980 E.L.T. 704 (Bom.)]. By this decision, the High Court of Bombay wrote in paragraph 8 that the vegetable tallow must be held to be a finished excisable goods although it did not agree that every excisable goods is a finished excisable goods. The learned Counsel for the Department argued that this would support her case that an excisable goods need not be what is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required of a marketable calcium carbide required by the Calcium Carbide Rules of 1937. 34. A judgment delivered by the High Court at Allahabad - Union of India v. Union Carbide [1978 E.L.T. J 1], held that a thing would nonetheless be goods even if it does not have a market where it can be easily bought or sold. The fact that a product may not be known to the general public or to the traders in general will not change the position, and the court held that the test of general marketability did not appear to be sound. In paragraph 18, the High Court said that the Supreme Court in the Delhi Cloth Mills case 1977 E.L.T. (J 199) (S.C.) = AIR 1963 S.C. 791 held that because a particular substance produced at an intermediate stage is not put in the market for sale would not make any difference and would be immaterial for its liability to duty. Excise duty was a duty on manufacture and production of goods and not on sale, held the court. It noted that to be goods, an article need not be marketed and that marketability is not an essential ingredient in the meaning of the terms material and articles. 35. The High Court of Calcutta in Union Carbide Company v. Assistant Collector of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uled that rough rolled zinc would be assessable to duty as sheets and strips notwithstanding the roughness. This was a decision delivered by Justice Sabyasachi Mukharji, who has since become a Justice of the Supreme Court. There is no evidence in this case before us either that the calcium carbide produced by M/s. ILAC is not known as calcium carbide in the commercial community. 37. The High Court of Madras in Commissioner of Co-operation of Madras v. Assistant Collector of Central Excise - 1978 E.L.T. J 653, ruled that there cannot be any distinction between the manufacture of goods for sale and the manufacture of goods for one s own purposes other than sale, under the Central Excise Act. It quoted a passage from Supreme Court judgment AIR 1962 S.C. 1006, M/s. Chottabhai v. Union of India which runs : In our view, a duty of excise is a tax levy on home produced goods of a specified class or description, the duty being calculated according to the quantity or value of the goods and which is levied because of the mere fact of the goods having been produced or manufactured and unrelated to and not dependent on any commercial transaction in them. The duty in the present case sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Evidently, the offer was of calcium carbide. Perhaps the price was not right or may be the delivery was not what the customer wanted. Whatever the reason for the failure of the deal, M/s. ILAC tried to sell calcium carbide. They would not have tried to sell as calcium carbide another gas, say, ammonia or carbon dioxide. The words of the Supreme Court are very significant and full of meaning. If the gas produced was carbon dioxide then that was what the gas was even if it did not meet the Indian Standards specification of 99% CO2 content. A sub-standard carbon dioxide would still be carbon dioxide as long as it was carbon dioxide. 42. We say likewise. The calcium carbide may be sub-standard or may not meet Indian Standards specification but it was calcium carbide and was used as calcium carbide. Therefore, it must be treated under the excise law as calcium carbide with all the consequences that follow. 43. The 1978 E.L.T. J 121 judgment of the Delhi High Court contained significant observations of the Hon ble Court. It observed that there was a separate chapter of the Carbide of Calcium Rules and that within the rules, the calcium carbide which did not comply with the require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court did not consider and decide the question whether acetylene gas produced in a continuous, integrated and uninterrupted process of manufacture was goods within the meaning of the Central Excises and Salt Act, 1944. It is thus clear that this question could not have been adjudicated upon by the Supreme Court. 46. From the above judgments, it will not be possible for us to hold with the learned Dr. Kantawala and to rule that non-marketability or the fact that the goods was not marketed whether for its lack of quality, purity or any other reason would immunise it from excise. There are too many judgments which say that as long as a thing was capable of being called by that name, even if it did not have the standard or accepted purity, it would still be called by that name and would have to undergo excise. There are as many judgments which have ruled that non-removal outside the factory would not make any difference to the excisability of the goods. On this point we have the amendment to Rule 9 and Rule 49 that effectively settles the dispute and makes all excisable intermediate goods, even when used for captive consumption, liable to duty. We, therefore, have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... people in the trade and commerce know that they are receiving goods of a certain technical quality and are not cheated by being sold sub-standard goods even if they answer to the names in a general way. There is nothing to show that any of the authorities under the Carbide of Calcium Rules have required them to take up licences to store or to transport or to move their carbide and acetylene according to the laws in force. That is because the authorities who know what their factory is doing, do not consider that they are producing ponds of the name by which they are called. 49. The error in the appellants case is that they have confused the provisions of the Carbide of Calcium Rules as enforcement of a qualitative uniformity on products named therein. The rules are not designed for this. Calcium carbide is a dangerous chemical because it give off an inflammable vapour on contact with moisture. This inflammable gas - acetylene is very much easier to ignite than petrol vapour. Acetylene is also capable of forming an explosive mixture with air over wider limits than petrol. It is said that the explosive limits of petroleum vapour and air are between 1% to 6% of the mixture. For ace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is, a desirable quality, should be. We would like to quote a note appearing under paragraph 6.2.3 of Indian Standard : 1040-1978 - The use of the ISI Certification Mark is governed by the provisions of the Indian Standards Institution (Certification Marks) Act and the Rules and Regulations made thereunder. The ISI Mark on products covered by an Indian Standard conveys the assurance that they have been produced to comply with the requirements of that standard under a well-defined system of inspection, testing and quality control which is devised and supervised by ISI and operated by the producer. ISI marked products are also continuously checked by ISI for conformity to that standard as a further safeguard. Details of conditions under which a licence for the use of the ISI Certification Mark may be granted to manufacturers or processors, may be obtained from the Indian Standards Institution. 54. The same note appears under paragraph 3.2.1 of IS : 308-1977. It is obvious that ISI certification is not a regulation of quality but only a certificate of quality. Those manufacturers who conform to the standards are licensed to use the ISI Certification Mark and that mark is a gu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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