ivil Appeal No 2820 of 1984
From the Order dated 254844584 of the Customs Excise and Gold Control Appellate Tribunal New Delhi in Appeal No FD SBT A 99980 C in Order No 22384
Harish N Salve Mrs PS Shroff JM Patel and SA Shroff for the appellant
B Dutta Additional Solicitor General Ms Indu Malho tra and CVS Rao for the respondent
The Judgment of the Court was delivered by 385 SABYASACHI MUKHARJI J
This is an appeal under Section 35L of the hereinafter referred to as the Act  from the order passed and judgment delivered on 25th April 19844th May 1984 by the Customs Excise and Gold Control Appellate Tribunal New Delhi hereinafter referred to as the Tribunal 
The question involved is whether the crude PVC film is dutiable
The appellant is inter alia a manufacturer of crude PVC films for the purpose of use in final products such as leather cloth and laminate jute mattings and PVC tapes both insula tion and adhesive
The said crude PVC films are manufactured by the appellant in a continuous process in the factory premises of the appellant which are licensed premises under the Act
The appellant filed classification list No XIV75 dated 20th November 1975 in respect of crude PVC films used for lamination with jute and for tapes claiming that the said PVC films were non excisable on the ground that the same were nonmarketable intermediate products used exclu sively for captive consumption
The said classification was approved by the Assistant Collector Central Excise on 9th December 1977
There was an order passed by the Appellate Collector on 14th June 1974 holding that crude PVC films were not mar ketable and were not liable to excise duty
It is necessary to refer to the Tariff Entry involved in this case
Tariff Item 15 A2 of the Central Excise Tariff reads as follows Articles made of plastics all sorts includ ing tubes rods sheets foils sticks other rectangular or profile shapes
whether lami nated or not and whether rigid or flexible including levy flat tubings and polyvinyl chloride sheets not otherwise specified
 The same crude PVC films which have been manufactured by the appellant and used in the manufacture of some other end product were subject matter of adjudication by the concerned authorities in the period 131970 to 2951971
The Appel late Collector of Central Excise in an order dated 14th January 1974 held that the said PVC films manufactured by the appellant are not marketable intermediate products and hence not liable to duty
The Appellate Collector Central Excise in his order noted the contentions of the appellant that the appellant had produced sufficient evidence to prove that the crude PVC sheets which were the subject matter of the Show Cause Notice in that case and which are also the subject matter of the present show cause notice were not known in the market as PVC sheets nor were 386 these marketable as PVC sheets
After reference to the rival contentions the said Appellate Collector in his order held inter alia as follows PVC filmssheets for the clearance of which demand letters are issued are not marketable as the same are neither embossed nor printed nor any finishing Work is done when compared to PVC filmssheets which are marketed by them
It was further stated that the tensile strength of PVC sheets which is marketed by the appellants is as per the international standards laid down by ASTMISI and is much higher than the crude PVC sheets manufac tured by them as an intermediate product for further manufacture of leather cloth
As such it was contended that the product manufactured by the appellants is not liable to central excise duty
Shri Patel further stated that it was not necessary to prove from technical angle that the curde PVC sheets manufactured by the appellants for manufacturing leather cloth are different from PVC sheets which are manufactured by them and sold in the market as such
Crude PVC sheets used in the appellants  factory for further manufacture of leather cloth can be distinguished from PVC sheets which are marketed by them as such by naked eye
Moreover all the processes which are required in case of PVC sheets which are marketed by the appellants so as to make these sheets marketable are not carried out in the case of crude PVC sheets which are used by the appellants in their factory for the manufac ture of leather cloth    The Appellate Collector further held in the said order that from the technical point of view crude PVC sheets are different from marketable PVC sheets inasmuch as the tensile strength of crude PVC sheets is much lower than that of marketable PVC sheets
He further held that This is so because marketable PVC sheets are passed through the calender at very high temperature and at a slow speed to that gela tioncuring fusion takes place while in the case of crude PVC sheets the same are passed through the calender at very fast speed and lower temperature with the result that gela tion fusion in the course of heating and ageing is not formed resulting in lower ten sile strength
When these crude PVC sheets are coated with textile 387 fabrics the two layers are passed through the rollers at slow speed and at high temperature and it is only at this stage that the GEL is properly formed and resin particles become swollen by diffusion of plasticizer into them that they touch each other
As heating progresses the swollen particles begin to weld together resulting in the required degree of strength
 Thereafter the Classification List was filed in respect of crude PVC films manufactured for use in adhesive tapes on 9th December 1975 and the said list was approved by the Assistant Collector of Central Excise after making an in quiry in that behalf
On 15th February 1977 however a Show Cause Notice was issued by the Assistant Collector calling upon the appellant to show cause as to why crude PVC films should not be classified under teriff Item 15A2 and appropriate duty not recovered under Rule 10 of the Central Excise Rules as these then stood read with Rule 173 J of the Central Excise Rules
There was a corrigendum issued on February 23 1977 to the said Show Cause Notice dated 15th February 1977 substituting the words Rule 10  by the words Rule 10A 
A reply was given by the appellant to the said Show Cause Notice
In the said reply the appellant stated as follows We have repeatedly pointed out that the issue of Crude Film has been decided by the Appel late Collector and also by the Assistant Collector while approving classification
However the Superintendent persisted in pressing us for giving information about production figures of Crude Film  possibly with a view to raise demand
We had requested the Superintendent to let us know the provi sion under which he required us to give the information in regard to a product which was non excisable
He was not able to clarify this and tried to invoke wrong sections and rules according to us
The present action of re classification in order to make the product excisable some how or other seems to us to be a continuation of the matter which the Super intendent was not able to enforce on us
There is no change in the market terminology of PVC Film
Our product is not known in the market as PVC Film
Even technically also a further process is required to be carried out on our product before it is PVC Film as is known to the market
The various decisions of Supreme Court on this point are well known to the Department
It is also known 388 that the Appellate Collector s decision is binding on you
The principles of natural justice cannot be served by serving a show cause notice on us in order to change the Appellate Collector s decision in some manner or other
We have an uneasy feeling that an attempt is being made to some how bring the product under excise duty
 There was an order passed on 16th February 1978 by the Assistant Collector confirming the Show Cause Notice
On 10th October 1979 an appeal was preferred by the appellant against the order of the Assistant Collector dated 16th February 1978 which was rejected by the Appellate Collector of Central Excise
On 6th February 1980 a revision applica tion was preferred by the appellant to the Joint Secretary Government of India
That was transferred to the Tribunal and by the impugned order the Tribunal has rejected the appeal under challenge
The Tribunal in the order has set out the contentions and observed that the question for determination was whether crude PVC film fell for classification under Item 15A2 of the Central Excise Tariff or not
A submission was made that the Appellate Collector had held that the crude PVC sheets were not marketable and had not acquired the character and status of PVC films as known to the market
It was contended on behalf of the appellant that only marketable PVC film would fall within the said item
On the other hand the Department s contention was that there was nothing to show that the filmsheet was crude and the test of marketability was not relevant
According to the Tribunal the crude PVC filmssheets would fall under the Tariff Item
The Tribunal was of the view that the tariff entry did not spell out whether it covered only finished filmsheet or whether it covered also crude filmsheet
The Tribunal came to the conclusion that the tariff item covered all types of filmssheets
The Tribunal also came to the conclusion that the concept of marketability was not relevant and all sorts of crude films would be covered by the entry
The Tribunal was of the view that the Appellate Collec tor s observations were made entirely in different context
In that view of the matter the Appellate Collector s order was confirmed subject to the modification that duty in respect of clearances prior to the issue of the Show Cause Notice was restricted to the period permissible in terms of Rule 10 read with Rule 173 J that is to say for 12 months
In other words the Tribunal s view was that if the descrip tion of the 389 goods in question fell into the entry it was dutiable in the intermediate list and as such the goods had become goods as known to the market and the question of marketability or being capable of being sold in the market was not relevant
In support of this appeal on behalf of the appellant it was contended by Shri Harish Salve that it was only the goods as specified in the Schedule  to the Central Excise that could be subject to the duty
It appears to us that under the Central Excise Act as it stood at the relevant time in order to be goods as specified in the entry the first condition was that as a result of manufacture goods must come into existence
For articles to be goods these must be known in the market as such or these must be capable of being sold in the market a goods
Actual sale in the market is not necessary user in the captive consumption is not determinative but the articles must be capable of being sold in the market or known in the market a goods
That was necessary
This has been clearly spelt out by this Court in Union of India vs Delhi Cloth  General Mills 1963 Supp
1 SCR 586
There this Court held that excise duty being leviable on the manufacture of goods and not on their sale the manufacturer could not be taxed unless manufacturing process resulted in production of goods as known in the market  empahsis supplied
In that case the respondents who were manufacturers of vegetable products known as Vanas pati were assessed to excise duty under Item 23 of the First Schedule to the  on what the taxing authorities called the manufacture of r efined oil  from raw oil which according to them fell within the description of vegetable non essential oils all sorts in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power
The common case made by the respondents in their petition under Article 226 of the Constitution challenging the imposition was that for the purpose of manufacturing Vanaspati they purchased groundnut and til oil from the market and subjected them to different processes before applying hydrogenation to produce Vanaspati and that nothing that they produced at any stage was covered by that item
Affidavits by experts were filed by both the parties and the High Court found in favour of the respondents and allowed the petitions
The Union of India appealed
It was urged on its behalf before this Court that before finally producing Vanaspati the respondents produced at an intermediate stage what was known as refined oil  in the market and although they might not sell it and although Vanaspati when produced was liable to excise duty under another item that could not affect their liability
It was held that excise duty being leviable on the 390 manufacture of goods and not on their sale the petitioners in that case no doubt be liable if they produced refined oil  as known in the market at an intermediate stage
But the Court found that it was clear that there could be no refined oil  as known in the market without deodorisation according to the specification of the Indian Standards Institute and the affidavits of the experts
Since however the process of deodorisation was admittedly applied in the respondents  factories only after hydrogenation was com plete they could not be said to produce refined oil  at any stage
Nor could the respondents be held to manufacture some kind of non essential vegetable oil 
KC Das Gupta J who spoke for the Court at page 595 of the report observed as follows On a consideration of all these materials we have no doubt about the correctness of the respondents  case that the raw oil purchased by the respondents for the purpose of manufac ture of Vanaspati does not become at any stage refined oil as is known to the consumers and the commercial community After considering the definition of the word manufac ture  and several authorities and Words and Phrases Perma nent Edition Vol 18 from a judgment of the New York Court and also other relevant authorities this Court held that the definitions made it clear that to become goods an article must be something which can ordinarily come to the market to be bought and sold
Emphasis supplied
In that view of the matter this Court agreed with the High Court and dismissed the appeal
Therefore the first principle that emerges is that excise was a duty on goods as specified in the Schedule
In order to be goods an article must be some thing which can ordinarily come to the market and is brought for sale and must be known to the market as such
Therefore the marketability in the sense that the goods are known in the market or are capable of being sold and purchased in the market is essential
This principle was again reiterated by this Court in South Bihar Sugar Mills Ltd etc
vs Union of India  Ors
   where this Court held that the gas generated by the appellant companies in that case was kiln gas and not carbon dioxide as known to the market ie to those who deal in it or who use it
Therefore the kiln gas in question is neither carbon dioxide nor com pressed carbon dioxide known as such to the commercial community and could not attract duty under Item 14 H of the First Schedule
It was held by this Court that the duty being on the manufacture and not on the sale the mere fact that kiln gas generated by those concerns was not actually 391 sold did not make any difference if what they generated and used in their manufacturing process was carbon dioxide
Justice Shelat speaking for the Court at page 31 of the report observed The Act charges duty on manufacture of goods
The word manufacture implies a change but every change in the raw material is not manu facture
There must be such a transformation that a new and different article must emerge having a distinctive name character or use
The duty is levied on goods
As the Act does not define goods the legislature must be taken to have used that word in its ordinary dictionary meaning
The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market
emphasis supplied
That it would be such an article which would attract the Act was brought out in Union of India vs Delhi Cloth  General Mills Ltd 1963 Suppl 1 SCR 586
 In that view of the matter the Court came to the conclusion that the gas generated by these concerns was kiln gas and not carbon dioxide as known to the trade ie to those who deal in it or who use it
It must be capable of being sold in the market and known in the market as such
Then only it would be dutiable
This view was reiterated again in Union Carbide India Ltd vs Union of India where Pathak J as the learned Chief Justice then was speaking for the Court observed that in order to attract excise duty the article manufactured must be capable of sale to a consumer
The expression goods manufactured or produced must refer to goods which are capable of being sold to the consumer
This Court observed as follows It does not seem to us that in order to attract excise duty the article manufactured must be capable of sale to a consumer
Entry 84 of List I of Schedule VII to the Constitu tion specifically speaks of duties of excise on tobacco and other goods manufactured or produced in India   and it is now well accepted that excise duty is an indirect tax in which the burden of the imposition is passed on to the ultimate consumer
In that context the expression goods manufactured or produced must refer to articles which are capable of being sold to a consumer
In Union of India vs 392 Delhi Cloth  General Mills this Court con sidered the meaning of the expression goods for the purposes of the and observed that to become goods  an article must be something which can ordinarily come to the market to be bought and sold a definition which was reiterated by this Court in South Bihar Sugar Mills Ltd vs Union of India
 It is necessary in this connection to reiterate the basic fundamental principles of excise
The Judicial Commit tee of the Privy Council in Governor General in Council vs Province of Madras  this Court observed at page 1287 of the report that excise duty was primarily a duty on the production or manufacture of goods produced or manufactured within the country
This Court again in Re The Bill to Amend section 20 of the  And Sec tion 3 of the   at page 822 of the report referring to the aforesaid observations of the Judicial Committee reiterated that taxable event in the case of duties of excise is the manu facture of goods and the duty is not directly on the goods but on the manufacture thereof
Therefore the essential ingredient is that there should be manufacture of goods
The goods being articles which are known to those who are deal ing in the market having their identity as such
Section 3 of the Act enjoins that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or man ufactured  in India
Excisable goods under section 2d of the Act means goods specified in the Schedule to the Central Tariff Act 1985 as being subject to a duty of excise and includes salt
Therefore it is necessary in a case like this to find out whether there are goods that is to say articles as known in the market as separate distinct identi fiable commodities and whether the tariff duty levied would be as specified in the Schedule
Simply because a certain article falls within the Schedule it would not be dutiable under excise law if the said article is not goods known to the market
Marketability therefore is an essential ingre dient in order to be dutiable under the Schedule to Central Tariff Act 1985
It appears from the facts as aforesaid before that the crude PVC films as produced by the appellant in this case were not known in the market and could not be sold in the market and was not capable of being marketable
The learned Solicitor General submitted before us that the Tri 393 bunal was right in considering that as the article fell within the Entry the marketability was irrelevant and the Tribunal was right in not considering whether the articles in question namely crude PVC films used in this case were marketable or capable of being sold and used in the market
Mr Harish N Salve on the other hand submitted that as it was found that the goods were not marketable by the Appellate Collector in the order of 1974 and no evidence was adduced before the Tribunal to the contrary and the Tribunal refused to consider the question of marketability no useful purpose would be served in remanding the matter to the Tribunal
The appeal should be allowed and no duty should be charged
As mentioned before the Appellate Collector has on 141
1974 held that the crude PVC sheetsfilms which formed the subject matter of the appeal are manufactured by the appellant for the production of leather cloth in the factory are not marketable as PVC sheets and had allowed the appeal because he found that   because PVC sheets of the gauges manufactured by the appellants are invariably either embossed or printed or both
The nature of embossing may be with an engraving roll or with a mirror finished roller or a mat finish
The manufacture or PVC sheets marketable as such involves the following processing se quences namely Polyvinyl chloride resin is formulated with plasticizer colorants heat stabilizers etc
and the formulation is thoroughly mixed
When homogeneous this mix is fed through a two roll mill to give heavy sheet stock which in turn is fed to the calender where it is reduced to the desired width thickness etc
The temperature at which PVC sheets which are marketed as such are passed through the calender is about 178o C 330 350x and the speed of the roller is adjusted accordingly
The speed of the roller and the temperature at which the sheets are passed through the calender are important factors in order to achieve the minimum stand ard of tensile strength of the sheets
Gela tion ie the change of state from the liquid to the solid condition that occurs during the heating andor ageing when the plasticizer has been absorbed by the resin to an extent resulting in a dry but weak and crumbly mass and thereafter within normal proportions of resin and plasticizer this state is 394 attained when the resin particles have become so swollen by diffusion of plasticizer into them that they touch each other is an impor tant process in the case of PVC sheets which are marketed as such
As heating progresses the swollen particles begin to weld together resulting in some degree of strength
After the GEL is formed in such PVC sheets and resins get fused with plastisizer they are further subjected to the processing of finish ing embossingprinting
On the other hand crude PVC sheets manufactured by the appel lants for production of leather cloth in their factory are passed through the rollers at a temperature of 130o 1400 280 F and the speed of the roller is therefore faster
Due to low temperature and faster speed of the rollers fusion is not completed in such crude plasticizers thus resulting in the tensile strength of such crude PVC sheets which is much less than the tensile strength of the PVC sheets which are marketable as such
The tensile strength of PVC sheets which are marketed as such and the crude PVC sheets which are used by the appellants in their factory for the manufacture of leather cloth are as under 1 Marketable PVC sheets Thickness Tensile strength Per cm
in Kgs
Longitudinal Transverse 008 mm 239 185 O 10 mm 230 201 O 15 mm 268 2 13 020 mm 230 200 2 Crude PVC sheets Thickness Tensile strength Per cm
sq kgs
Longitudinal Transverse O 11 mm 127 98 022 mm 144 107 The thickness of crude PVC sheets of O 11 mm ultimately comes to 10 mm when it is coated with textile fabrics and rolled
Similarly the thickness of crude PVC sheets of 022mm ultimately comes to when it is coated with fabrics and rolled
395 The idea behind producing crude PVC sheets at low temperature and at high speed of the rollers is that when such crude PVC sheets are coated with textile fabrics and passed through a coating machine high temperature is required to be maintained and the speed at which the rollers move has also got to be slow so that these partially fused crude PVC sheets are eventually fully fused at the time of coating these sheets with textile substrates
No finishing embossing or printing is done in case of such crude PVC sheets
I therefore hold that the crude PVC sheets manufactured by the appellants are used by them in the manu facture of leather cloth in their factory are not marketable as PVC sheets and as such the same are not liable to duty under Item 15A2 of the said Schedule
 In view of the Appellate Collector s order dated 1411974 it was the duty of the revenue to adduce evidence or proof that the articles in question were goods
No evi dence or proof was produced
The Tribunal went wrong in not applying the proper test
The test of marketability or capable of being marketed was not applied by the Tribunal
In that view of the matter that there being no contrary evidence found by the Tribunal in this case subsequent to the finding by the Appellate Tribunal we are of the opinion that the appeal should be allowed and no excise duty should be charged under section 15A2 of the Central Excise Tariff on the Crude PVC sheets
In the facts and circumstances of the case there will be no order as to costs
TNA Appeal allowed


Summary:
The respondent in each of the appeals is the assessee
It was a firm of 10 individuals
They acquired a reserve forest by a lease which entitled them to enjoy the usufruct of the forest by its exploitation
The partnership deed provided that the firm will carry on the development and exploitation of lands
The acquisition was effected with a view to raise a coffee and cardamom plantation thereon
For doing this the assessee had to clear a portion of the forest and in the process fell the unwanted trees standing thereon as natural growth
The cut trees were sold by the assessee in the form of firewood as well as in the form of cut sizes of timber as well as sleepers
Some of the growth was also converted into charcoal and the resultant charcoal sold
The firm had been functioning for the past 7 years and had been paying sales tax on its sale of firewood timber and sleepers
But for the first time in the assessment year 1968 69 it put forward a claim that the above turnover was not assessable in its hands
The assessing officer and the first appellate authori ties held that the turnover in question to be taxable
But the Tribunal reversed this decision and held that the turnover was not liable for assessment to sales tax
The High Court dismissed the revision petition filed by the State
It held that it was a case of a lease
It did not involve any sale of trees
Merely because the trees were sawn to sizes would not by itself make out a sale
The suggestion that the sizing of trees into timber of their conversion into sleepers could make a difference was not accepted by the High Court which following the decision of the Kerala High Court in Kuttiravin  Co vs State of Kera la 1976 38 STC 282 affirmed the Tribunal s order
409 The State appealed to this Court
Allowing the appeals and setting aside the order of the High Court and Tribunal the Court HELD la The fact that the assessees are business entities the size of the tract developed the extent and value of the trees standing on the land the inevitability of the jungles having to be cleared and the standing trees disposed of before commercial crops would be grown the manner in which the forest trees were disposed of are all insignia that mark out the entire set of activities as a concern in the nature of trade
414D E lb In the area of income tax law it has been held that no adventure in the nature of trade can be spelt out where all that a person does a mounts to a mere realisation of his capital assets
414E F lc The assessees in the instant case did not merely realise the value of a capital asset belonging to them
They went in for the acquisition of an asset fully realising its potentialities for exploitation not merely as a plantation but also incidentally by disposing of the existing growth on the land
414G H ld If one purchases an asset with a view to turn it to account in such manner one is certainly carrying out an adventure in the nature of trade
414H 415A 2a The definition of business  in the TN General Sales Tax Act 1959 includes any transaction in connection with or incidental to or ancillary  to a trade
The activi ties carried on by the assessee were incidental and ancil lary to the business which the assessee was carrying on or definitely intended to carry on
It is also immaterial on this definition that the assessee may not have had a m otive of making a profit or gain  on these sales though on the facts it is clear that such motive must have existed and in any event could not be ruled out
415B C 2b Even the sales effected before the plantation started yielding results would be covered by the definition as the venture undertaken by the assessee has to be consid ered as an integral whole and there can be no doubt that the sale of the forest produce was part of activities in the contemplation of the assessees right from the beginning
416B 410 Kuttiravin  Co vs State 1976 38 STC 282 over ruled
LN Plantation Co vs State 1981 47 STC 210 Tamil Nadu Trading Co vs State 1981 52 STC 7 approved
Deputy Commissioner vs Shree Shamungam Estates 1979 43 STC 226 Mad
reversed State vs Surmah Shell 1973 31 STC 426 District Controller of Stores vs Assistant Commercial Tax Officer 1976 37 STC 423 referred to Deputy Commis sioner vs Palampadam Plantation 1969 24 STC 231 distin guished