Universal Trades Private Ltd. And ... vs Union Of India (Uoi) And Ors.
2003 Latest Caselaw 186 Bom

JUDGMENT

J.P. Devadhar, J.

1. The short question that arises for consideration in this writ petition is, whether the recorded magnetic tapes in spools/pancakes are liable to excise duty even though the same are not marketable and even if excisable, whether they are covered by exemption Notification issued from time-to-time?

2. The facts relevant for the purpose of the present petition are as follows : The petitioners inter alia manufacture pre-recorded cassette tapes. The petitioners purchase magnetic tapes in spools falling under the erstwhile Tariff Item 59(1) of the Central Excise Tariff ("CET" for short). On recording the magnetic tapes in spools/pancakes they were classifiable under Tariff Item 59(2) of the CET. Thereafter, the magnetic tapes are cut to size and fixed in the audio cassette tapes. This sound recorded cassette tapes were classifiable under Tariff Item 59(4) of the CET. Thus, under the CET, unrecorded magnetic tapes in spools/pancakes were classifiable under 59(1) of CET and sound recorded magnetic tapes in spools/pancakes were classifiable under 59(2) of the CET and sound recorded cassette tapes were classified under 59(4) of the CET.

3. By exemption notification No. 102 of 1982/CE dated 28th February, 1982 the Central Government in exercise of its powers conferred by Rule 8(1) of the Central Excise Rules, 1944 exempted recorded articles falling under Item 59 of the first Schedule of the Central Excise and Salt Act from whole of the excise duty leviable thereon, provided that such articles are made from any article, falling under the said Item 59 and are not intended for sale or the promotion of sale.

4. With effect from 1st March, 1986 new CET came into force, wherein unrecorded magnetic tapes in spools/pancakes were classified under Chapter Heading 85.23 and recorded magnetic tapes in spools/pancakes were classified under Chapter heading 85.24 of CET. Later on, the CET was further modified by classifying audio tapes in any form under Chapter heading 8524.21 and audio cassettes under chapter heading 8524.22 of the CET.

5. By a Notification No. 68 of 1986/CE dated 10th February, 1986, the Central Government in exercise of its powers conferred by Rule 8(1) of the Central Excise Rules, 1944 exempted sound recorded magnetic tapes, whether in spools or reels falling under Heading 85.24 from the whole of excise duty, provided that such articles are made from unrecorded articles falling under Heading 85.23 and are not intended for sale or for promotion of sale.

6. By a Notification No. 48 of 1994/CE dated 1st March, 1994 sound recorded magnetic tapes in spools or pancakes falling under heading 85.24 were exempt from excise duty provided that such articles are made from unrecorded articles falling under Heading 85.23 and provided further that such articles, (i) are not intended for sale, or (ii) are intended for sale or supply in the form of Umatic video tapes of width not less than 19MM to Doordarshan, or (iii) are intended for sale or supply to All India Radio or any other Department of Government of India or Ministry of Broadcasting.

7. Thus, recorded magnetic tapes in spools/pancakes were all along exempt from excise duty subject to the conditions as set out in the exemption notifications issued from time to time. In the present case, the petitioners who had recorded magnetic tapes in spools/pancakes and then cut them and fix in audio cassettes had in their classification lists contended that the recorded magnetic tapes in spools/pancakes being not marketable commodity were not excisable and in the alternative it was contended that the goods were exempted from payment of duty by Notification No. 102 of 1982. The Excise Authorities issued show cause notice to the petitioners from time-to-time calling upon them to show cause as to why the petitioners should not be denied benefit of exemption notification No. 102 of 1982. Ultimately by the impugned order dated 13th May, 1988 the Assistant Collector of Central Excise held that the recorded spools/pancakes manufactured by the petitioners are excisable and that the petitioners are not entitled to benefit of Notification No. 102 of 1982 dated 28th February, 1982 or No. 68 of 1986 dated 10th February, 1986 as amended and the petitioners were called upon to pay excise duty. The respondents have also issued show cause-cum-demand notice for recovery of the excise duty on recorded spools/pancakes. Challenging the said order and the demand-cum-show cause notice the present petition has been filed.

8. Mr. Diwan, learned Counsel appearing on behalf of the petitioners submitted that the recorded spools/pancakes are not marketable and hence not excisable. Relying upon the decision of the Apex Court in the case of Collector of Central Excise v. United Phosphorous Limited , he submitted that even though the intermediate goods coming into existence are specified in the schedule as excisable they would not be subjected to duty unless they satisfy the test of marketability. He submitted that in order to be excisable the goods manufactured must be capable of bought and sold. According to Mr. Diwan recorded spools or pancakes being intermediate products they do not satisfy the test

of the goods on the touchstone of marketability and hence the said goods cannot be held to be excisable. Mr. Diwan submitted that the recorded spools/pancakes form an intermediate stage in the continuous and integrated process of manufacture of prerecorded audio (apes. He submitted that the onus is on the department to show that the said products are indeed marketable. Merely on the presumption that the said recorded spools/pancakes can be sold, it cannot be said that the said goods are marketable goods.

9. Alternatively, Mr. Diwan submitted that even assuming that the recorded spools/pancakes were excisable, the said goods were wholly exempt from payment of excise duty under the exemption notification issued from time-to-time. He submitted that in the case of business rivals who manufacture similar recorded magnetic tapes in spools/pancakes, the respondents have granted benefit of exemption notification and the petitioners are singled out for the levy of excise duty which is wholly discriminatory.

10. Mr. R. V. Desai, learned Senior Counsel appearing on behalf of the respondents on the other hand, supported the order of the Assistant Collector and submitted that the recorded audio tapes in spools/pancakes are capable of being marketed to other industries engaged in the manufacture of prerecorded audio cassettes. He submitted that it was for the assessee to establish that the recorded magnetic tapes in spools/pancakes were not marketable goods. He submitted that the trade certificates submitted by the petitioners do not in any way, affect the marketability of the products. He submitted that the order passed in the case of business rivals of the petitioners do not set out any reasons for granting exemption to the manufacturer therein and, therefore, unsubstantiated order passed by an authority cannot be said to be binding upon all the excise authorities. As regards the exemption notifications referred to by the petitioners, he submitted that the petitioners did not satisfy the conditions attached to the exemption notifications. Accordingly, he submitted that the order impugned in the petition is wholly justified and no interference is called for in a writ jurisdiction.

11. Having heard the counsel on both sides, we are of the opinion that there is no merit in the contention of the petitioners that the recorded magnetic tapes in spools/pancakes are not excisable. From the Tariff entry it is distinctly clear that audio tapes in spools/pancakes form a separate and distinct goods and, therefore, they have been separately classified under Tariff heading 8524.21. Once the audio magnetic tapes are recorded in spools/pancakes the manufacture is complete and it can be sold to any other manufacturer who can use the same for manufacture of recorded audio cassettes falling under tariff heading 8524.22. The fact that ordinarily the recorded magnetic tapes in spools/pancakes are not sold to the industries engaged in the business of manufacturing audio cassettes but are ordinarily used in the continuous integrated process for manufacture of audio cassettes does not mean that the goods are not marketable. The very fact that the said goods are exempted from payment of excise duty subject to the conditions set out in the exemption notifications issued from time-to-time clearly shows that the recorded magnetic tapes in spools/pancakes are marketable goods and are excisable under tariff heading 8524.21 of the CET. Therefore, recorded magnetic tapes in spools/pancakes cannot be said to be an intermediate product and hence the contention of the petitioners that it is not marketable and hence not excisable cannot be accepted.

12. Now, turning to the alternate submission of the petitioners, we see that there is no justification for denying the benefit of the exemption to the petitioners. Exemption Notification No. 102 of 1982, 68 of 1986 and 48 of 1994 issued by the respondents exempt recorded magnetic tapes in spools/pancakes if manufactured from unrecorded magnetic tapes of width not exceeding 6.5 millimeters falling under Tariff heading 59 or 85.23 of the CET subject to the conditions set out therein. There is no dispute that in the case of the petitioners, the recorded magnetic tapes in spools/pancakes are manufactured from goods falling under Tariff heading 59 or 85.23 of the CET on which appropriate excise duty is paid. It is also not in dispute that the recorded magnetic tapes in spools/pancakes are not intended for sale or promotion of sale and are in fact consumed by the petitioners themselves in the manufacture of recorded audio cassettes falling under Tariff heading 59(4) or 8524.22 on which excise duty is paid. It is the case of the petitioners that the recorded magnetic tapes of width not exceeding 6.5 millimeters in spools/pancakes are not intended for sale or promotion of sale and are in fact used by them in the manufacture of audio cassettes. The revenue has not adduced any evidence to contradict the contention of the petitioners. Moreover, the revenue has not disputed that the benefit of the exemption Notification has been granted to a similar manufacturer. In this view of the matter, we have no hesitation in holding that the recorded magnetic tapes of width not exceeding 6.5 millimeters in spools/pancakes manufactured by the petitioners comply with the conditions set out in the aforesaid exemption Notification issued from time to time and accordingly the petitioners are entitled to the benefit of the exemption in vague at the relevant time.

13. In the result, petition succeeds and the impugned order dated 13th May, 1988 and demand-cum show cause notice dated 29th June, 1988 are quashed and set aside. Rule is made absolute in terms of prayer Clause (a) of the petition, with no order as to costs.