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Commissioner of Central Excise & Service Tax, Bangalore Vs. Karnataka Soaps & Detergents Ltd. - (Supreme Court) (12 Oct 2017)

To hold the product as excisable, actual marketing or sale of goods is not necessary



In facts of present case, the Respondent is a manufacturer of agarbathi perfumes. The agarbathi perfumes are odoriferous compound prepared by the Respondent in its Bangalore unit and then transported to its Mysore unit, where it is applied to agarbathis to complete the process of manufacture of agarbathis. The Central Board of Excise and Customs ('the Board') issued circular which clarified that, the odoriferous substance, not capable of being bought and sold in the market in the normal course of trade, is not excisable.

The Additional Commissioner of Central Excise, issued show-cause notices calling upon the Respondent to pay excise duty along with penalty and interest at the appropriate rates under Sections 11A, 11AB and 11AC of the Central Excise Act, 1944. The Additional Commissioner passed orders holding that, the Board's Circular dated 22nd November, 1999 is not applicable to the Respondent and hence, the Respondent is liable to pay excise duty, penalty and interest thereon in respect of odoriferous substance prepared by it. These orders were confirmed by the appellate authority in the appeals filed by the Respondent. The Respondent challenged the said orders before the CESTAT. The CESTAT has allowed the appeals and set aside the said orders to the extent they uphold the demand of duty, interest thereon and the penalty imposed on the Appellant for which there was no evidence of sale. The Revenue has challenged the correctness of the said orders in present appeals.

The Board's Circular No. 495/61/99-CX.3 :MANU/EXCR/0062/1999 dated 22nd November, 1999 clarifies that, odoriferous substances are not marketable because these products are not sold by manufacturers in order to protect their trade secret. The Circular by way of illustration also stated that, the whole process of manufacturing agarbathi, that is preparation of the odoriferous compounds and their mixing with the dough or agarbathi is normally carried out in a continuous manner since the whole process is continuous. These odoriferous substances do not remain with the manufacturer to be sold in the market.

The Central Excise Chapter Heading No. 3302.90 covers all types of mixtures of odoriferous substances of a kind, used as raw materials in industries. It is evident that, the clarification is applicable to the product which comes into existence, at intermediate stage in the form of paste/dough in a continuous process of manufacture and not to the manufacture of odoriferous perfume, which is in liquid form and transported/stored in barrels/drums. The said Circular cannot be made applicable to cases beyond its scope. The Circular cannot be equated with that of an exemption notification but is required to be read within the limited scope of its context in which it was issued. The Circular did not give exemption to products which are otherwise dutiable. The Circular clarifying certain doubts cannot give effect of an exemption notification. Therefore, it cannot be said that, the agarbathi compound manufactured by the Respondent is covered under the aforesaid Circular.

To hold the product as excisable/dutiable, actual marketing/sale of goods is not necessary. What is required to be proved is that the capability of marketing the product. Marketability is decisive test for dutiability. Whether the goods are, in fact, marketed or not is of no relevance. It is also not necessary that, goods in question should be generally available in the market. Even if the goods are available from only one source or from a specified market, makes no difference so long as they are available for purchasers. (A.P. State Electricity Board v. Collector of Central Excise, Hyderabad, MANU/SC/0643/1994)

In the instant case, the Assessee manufactures agarbathi perfumes (odoriferous compound) by mixing inputs, aromatic chemicals, perfume oil and acids according to the pre-determined formula. It is prepared by the Respondents in their Bangalore factory and then, transferred to their Mysore factory where finally it is applied on raw agarbathis. In this process of manufacturing the perfumery compounds are capable of being sold in the open market. The odoriferous compound has got a shelf life and capable of being stored/transported/sold and bought by agarbathi industries. The Assessee had sold certain quantity of perfumery compound to Tibetan Handicrafts Centre. Therefore, Supreme Court is of view that it, is an excisable product falling under Chapter Sub-Heading 3302.90. The counter view taken by the CESTAT cannot be justified. Hence, the appeals are allowed and the orders passed by the CESTAT are hereby set aside.

Relevant : A.P. State Electricity Board v. Collector of Central Excise, Hyderabad, MANU/SC/0643/1994: (1994) 2 SCC 428


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