Case: M/S. Flex Engineering Ltd Vs. Commnr. Of Central Excise, U.P

Sarabhai Enterprises (P) Ltd. ((1989) 4 SCC 112 ) the finding in each case on the basis of the material before the Court was that the articles in question were not marketable and were not known to the market as such. The `marketability is thus essentially a question of fact to be decided on the facts of each case. There can be no generalisation. The fact that the goods are not in fact marketed is of no relevance.” 9. It may be noticed that in the cases referred to in the passage, quoted above, the reasons for holding the articles “not marketable” are different, however, they are not exhaustive. It is difficult to lay down a precise test to determine marketability of articles. Marketability of goods has certain attributes. The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought and sold. The fact that the product in question is generally not being bought and sold or has no demand in the market would be irrelevant. The plastic body of EMR does not satisfy the aforementioned criteria. There are some competing manufacturers of EMR. Each is having a different plastic body to suit its design and requirement. If one goes to the market to purchase the plastic body of EMR of the respondents either for replacement or otherwise one cannot get it in the market because at present it is not a commercially known product. For these reasons, the plastic body, which is a part of EMR of the respondents, is not “goods” so as to be liable to duty as parts of EMR under para 5(f) of the said exemption notification.” (Emphasis supplied by us) 18. In Collector of Central Excise, Calcutta-II Vs. M/s Eastend Paper Industries Ltd. ((1989) 4 SCC 244 ), the assessee was manufacturing different kinds of paper. A question arose whether the wrapping paper manufactured and used for wrapping the finished product is a part of manufacture. It was held that wrapping of finished product by wrapping paper is process incidental and ancillary to completion of the manufactured product under Section 2 (f) of Act. Thus, the Court held that, anything required to make goods marketable, must form a part of manufacture and any raw material or any material used for same would be a component part of the final product. 19. In Dharampal Satyapal Vs. Commissioner of Central Excise, Delhi-I, New Delhi ((2005) 4 SCC 337 ), the term marketable has been held to mean saleable, as under: “18......Marketability is an attribute of manufacture. It is an essential criteria for charging duty. Identity of the product and marketability are the twin aspects to decide chargeability. Dutiability of the product depends on whether the product is known to the market. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. Marketable means saleable. The test of classification is, how are the goods known in the market. These tests have been laid down by this Court in a number of judgments including Moti Laminates (P). Ltd. v. CCE ((1995) 3 SCC 23 ), Union of India v. Delhi Cloth & General Mills Co. Ltd. ((1997) 5 SCC 767 ) and Cadila Laboratories (P) Ltd. v. CCE ((2003) 4 SCC 12 ).” 20. Thus, if a product is not saleable, it will not be marketable and consequently the process of manufacture would not be held to be complete and duty of excise would not be leviable on it. The corollary to the above is that till the time the step of manufacture continues, all the goods used in relation to it will be considered as inputs and thus, entitled to Modvat credit under Rule 57A of the Rules. In the present case, as aforesaid, each machine is tailor made according to the requirements of individual customers. If the results are not in conformity with the order, then the machine loses its marketability and is of no use to any other customer. Thus, the process of manufacture will not be said to be complete till the time the machines meet the contractual specifications and that will not be possible unless the machines are subjected to individual testing. Even though the revenue has alleged that the process of manufacture is complete as soon as the machine is assembled, yet it has not discharged the onus of proving the marketability of the machines thus assembled, prior to the stage of testing. Moreover, as has been held in the case of Hindustan Zinc Ltd. Vs. Commissioner of Central Excise, Jaipur ((2005) 2 SCC 662 ;), the burden of proving whether a particular product is marketable or not is on the department and in the absence of such proof it cannot be presumed to be marketable. In the absence of the revenue having adduced any such evidence or contorted the assessees claim that the machines cannot be sold unless testing is done with some alternative evidence as to their marketability, the stand of the revenue cannot be accepted. 21. Thus, in our opinion the process of testing the customised F&S machines is inextricably connected with the manufacturing process, in as much as, until this process is carried out in terms of the afore-extracted covenant in the purchase order, the manufacturing process is not complete; the machines are not fit for sale and hence not marketable at the factory gate. We are, therefore, of the opinion that the manufacturing process in the present case gets completed on testing of the said machines and hence, the afore-stated goods viz. the flexible plastic films used for testing the F&S machines are inputs used in relation to the manufacture of the final product and would be eligible for Modvat credit under Rule 57A of the Rules. 22. In view of the aforegoing discussion, the

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]13. It is manifest that Rule 57A of the Rules entitled a manufacturer to take credit of the Central Excise duty paid on the inputs used inor in relationto the manufacture of the final product provided that the input and the finished product are excisable goods and fall under any of the specified chapters in the tariff schedule. It is pertinent to note that vide Notification No.28/95-C.E. (N.T.), dated 29th June 1995, the said Rule was amended and the phrasedirectly or indirectly and whether contained in the final product orwas inserted. There is no dispute that in the instant case, both the F&S machines and the flexible laminated plastic film and poly paper are excisable. Therefore, the short question for consideration is whether the said material on which Modavt credit is claimed by the assessee, not physically used in the manufacture of the said machine but used for testing the F&S machines would be covered within the sweep of the expressionor in relationto the manufacture of the finalas appearing in Rule 57A of the Rules. In short, the bone of contention is as to what meaning is to be assigned to the expressionrelation to the manufacture of final products.In our opinion, apart from the fact that the amended Rule itself contemplates that physical presence of the input, in respect of which Modvat credit is claimed, in the final product is not a pre-requisite for such a claim, even otherwise this issue is no longer res-integra. In Collector of Central Excise & Ors. Vs. Solaris Chemtech Ltd. & Ors. ((2007) 7 SCC 347 : 2007 (214) E.L.T. 481 (S.C.)), this Court while examining the scope and purport of the expressionor in relationto the manufacture of the finalobserved that these words have been used to widen and expand the scope, meaning and content of the expressionso as to attract goods which do not enter into finished goods.Thus, if a product is not saleable, it will not be marketable and consequently the process of manufacture would not be held to be complete and duty of excise would not be leviable on it. The corollary to the above is that till the time the step of manufacture continues, all the goods used in relation to it will be considered as inputs and thus, entitled to Modvat credit under Rule 57A of the Rules. In the present case, as aforesaid, each machine is tailor made according to the requirements of individual customers. If the results are not in conformity with the order, then the machine loses its marketability and is of no use to any other customer. Thus, the process of manufacture will not be said to be complete till the time the machines meet the contractual specifications and that will not be possible unless the machines are subjected to individual testing. Even though the revenue has alleged that the process of manufacture is complete as soon as the machine is assembled, yet it has not discharged the onus of proving the marketability of the machines thus assembled, prior to the stage of testing.our opinion the process of testing the customised F&S machines is inextricably connected with the manufacturing process, in as much as, until this process is carried out in terms of the afore-extracted covenant in the purchase order, the manufacturing process is not complete; the machines are not fit for sale and hence not marketable at the factory gate. We are, therefore, of the opinion that the manufacturing process in the present case gets completed on testing of the said machines and hence, the afore-stated goods viz. the flexible plastic films used for testing the F&S machines are inputs used in relationto the manufacture of the finalproduct and would be eligible for Modvat credit under Rule 57A of the