Case: M/S. Hindustan Zinc Ltd Vs. Comnr. Of Central Excise, Jaipur

stage, it, therefore, becomes necessary to see what is the product of the assessee and what is the product in the market. At the outset, it may be pointed out that both the products are silver chloride. Both exist in the form of white pasty mass. However, the question which arises for determination is on marketability. According to the assessee, silver chloride as a residue of the treatment of filtration, having silver content of 50% to 53%, has no market. According to the assessee, silver chloride which is sold in the market emerges from pure silver and, therefore, the content of silver in the silver chloride, which is sold in the market, is 75% and the purity level of 99%. In the case of Cadila Laboratories Pvt. Ltd.(supra), the Division Bench of this Court, speaking through one of us [Variava, J.] has held: 9. Thus, the law is that in order to be excisable, not only goods must be manufactured i.e. some new product brought into existence, but the goods must be marketable. By marketable it does not mean that the goods must be actually bought and sold in the market. But the goods must be capable of being bought or sold in the market. The law also is that goods which are in the crude or unstable form and which require a further processing before they can be marketed, cannot be considered to be marketable goods merely because they fall within the Schedule to the Excise Act. 12. It is an admitted position that the department has (1) made no efforts to ascertain whether any of the intermediate products are available in the market; (2) even if available whether or not products available in the market are the same as that produced by the Appellant; (3) none of the intermediate products manufactured by the Appellants were got analysed by a chemical analyser. It is admitted that the Report of the chemical analyser, relied on, was based only on the write up given by the Appellant. In his cross- examination the chemical analyser admits that there was no facility available in his laboratory to carry out tests to establish the identity of the products. He also admits that, except for 3-4 Diamino Benzophenone there was no reference available, regarding other intermediate products, in the technical literature available in the laboratory. 13. At this stage, it must be mentioned that Customs Notification relied upon does not refer to all the products. Reliance on such a Notification may be relevant and may show marketability if the goods are identical. However, where a question is raised that goods available in the market are finished or refined product whereas what is manufactured is in a crude and unrefined form, the burden would be on the department to show that what is available in the market is the same as the goods manufactured. In this case, no attempt is made to find out whether any of these products are bought or sold in the market and more importantly it has not been verified, by drawing samples of Appellants products and getting them chemically analysed, whether their claim is false. It has not been ascertained whether or not Appellants products are in crude and unstable form and/or whether these products had a shelf life of only a few hours. Mere fact that they are stored in tins or cans for a short period would not ipso facto lead to the conclusion that the products were stable. 14. It is admitted that the Appellants had bought one of the products from the market at one stage. However, they have explained that what was bought was in a purer form and the product they manufacture does not have that purity. It was for the department to check this. The department has chosen not to do so. The burden being on the department it will have to be held that they have not discharged that burden. The order passed only on the basis that these goods can conceivably be sold cannot be sustained in the light of the law which has been set out hereinabove. 8. Thus, marketability is essentially a question of fact. In the show-cause notice it is stated as follows: As per market enquiry conducted revealed that silver chloride (75%) was being sold ex-factory @ Rs.1000/- per 100 Gms. i.e. Rs.10,000/- per Kg. The silver chloride manufactured by M/s Hindustan Zinc Ltd. Debari containing 53.7% silver its assessable value of the comparable goods under the provisions of Rule 6(b)(i) of Central Excise (Valuation) Rules, 1975 works out to be Rs.7160/- per Kg. 9. This seems to suggest that some market enquiry was made. However, it could not be shown to us what that market enquiry was. The above statement also shows that silver chloride sold in the market had 75% silver content. In the present case, the department has made no efforts to ascertain whether silver chloride emerging from the treatment adopted in the assessees factory, having 50% to 53% silver content, had a market. Mathematical ratio between total quantity of silver chloride and silver content cannot establish marketability. The burden was on the department to prove such marketability. In the circumstances, on facts, we hold that the department has failed to prove the test of marketability. 10. Before concluding, we may point out that since 1990, when the case of Hindustan Zinc Ltd. (supra) came to be decided, the question of excisability of silver chloride has been cropping up and yet till this day no steps have been taken by the department to go to the market and collect proper evidence of marketability. In most of the matters, we find lethargy and reluctance on the part of the department to collect evidence on marketability and even in cases where market enquiry is made it is made in a perfunctory manner. Consequently, despite the department having good case on classification, we are constrained to allow the appeal of the assessee on marketability for want of evidence.

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

Explanation:
1[ds]7. At this stage, it, therefore, becomes necessary to see what is the product of the assessee and what is the product in the market. At the outset, it may be pointed out that both the products are silver chloride. Both exist in the form of white pasty mass. However, the question which arises for determination is on marketabilityIn the case of Cadila Laboratories Pvt. Ltd.(supra), the Division Bench of this Court, speaking through one of us [Variava, J.] has held:9. Thus, the law is that in order to be excisable, not only goods must be manufactured i.e. some new product brought into existence, but the goods must be marketable. By marketable it does not mean that the goods must be actually bought and sold in the market. But the goods must be capable of being bought or sold in the market. The law also is that goods which are in the crude or unstable form and which require a further processing before they can be marketed, cannot be considered to be marketable goods merely because they fall within the Schedule to the Excise Act12. It is an admitted position that the department has (1) made no efforts to ascertain whether any of the intermediate products are available in the market; (2) even if available whether or not products available in the market are the same as that produced by the Appellant; (3) none of the intermediate products manufactured by the Appellants were got analysed by a chemical analyser. It is admitted that the Report of the chemical analyser, relied on, was based only on the write up given by the Appellant. In his cross- examination the chemical analyser admits that there was no facility available in his laboratory to carry out tests to establish the identity of the products. He also admits that, except for 3-4 Diamino Benzophenone there was no reference available, regarding other intermediate products, in the technical literature available in the laboratory13. At this stage, it must be mentioned that Customs Notification relied upon does not refer to all the products. Reliance on such a Notification may be relevant and may show marketability if the goods are identical. However, where a question is raised that goods available in the market are finished or refined product whereas what is manufactured is in a crude and unrefined form, the burden would be on the department to show that what is available in the market is the same as the goods manufactured. In this case, no attempt is made to find out whether any of these products are bought or sold in the market and more importantly it has not been verified, by drawing samples of Appellants products and getting them chemically analysed, whether their claim is false. It has not been ascertained whether or not Appellants products are in crude and unstable form and/or whether these products had a shelf life of only a few hours. Mere fact that they are stored in tins or cans for a short period would not ipso facto lead to the conclusion that the products were stable14. It is admitted that the Appellants had bought one of the products from the market at one stage. However, they have explained that what was bought was in a purer form and the product they manufacture does not have that purity. It was for the department to check this. The department has chosen not to do so. The burden being on the department it will have to be held that they have not discharged that burden. The order passed only on the basis that these goods can conceivably be sold cannot be sustained in the light of the law which has been set out hereinabove8. Thus, marketability is essentially a question of fact9. This seems to suggest that some market enquiry was made. However, it could not be shown to us what that market enquiry was. The above statement also shows that silver chloride sold in the market had 75% silver content. In the present case, the department has made no efforts to ascertain whether silver chloride emerging from the treatment adopted in the assessees factory, having 50% to 53% silver content, had a market. Mathematical ratio between total quantity of silver chloride and silver content cannot establish marketability. The burden was on the department to prove such marketability. In the circumstances, on facts, we hold that the department has failed to prove the test of marketability10. Before concluding, we may point out that since 1990, when the case of Hindustan Zinc Ltd. (supra) came to be decided, the question of excisability of silver chloride has been cropping up and yet till this day no steps have been taken by the department to go to the market and collect proper evidence of marketability. In most of the matters, we find lethargy and reluctance on the part of the department to collect evidence on marketability and even in cases where market enquiry is made it is made in a perfunctory manner. Consequently, despite the department having good case on classification, we are constrained to allow the appeal of the assessee on marketability for want of evidence.