S.S. Sekhon, Member (T)

1. Appellants are a Public Limited Company and were one of the major manufacturers of automotive/lead acid batteries. They also manufactured Under Water/Sub-Marine Batteries (hereinafter referred to as UWB for sake of brevity) & supplied the same for use to Indian Navy Sub-marines. Certain parts, in addition to the batteries viz. positive plate, negative plate, containers, covers and pole straps were also fabricated for use in UWB. They had three factories. Present matter relates to the factory, at Kanjur Marg, Bhandup Mumbai, where these highly specialized massive UWBs were manufactured and cleared to Indian Navy for use solely to power the submarines of Russian make and were also on few occasions exported as supplies to Algerian Navy for use in like submarine.

2. From the affidavit of the Director on record, it appears that :-

(a) UWBs are used primarily to generate electrical energy as a source of power in a sub-marine, it is by 120 x 2v = 240 Volts. It has tubular positive plates, unlike flat ones in a car battery; this ensures longer life of usually 4 years or more. The negative plates for a car batteries are a grid surface of lead alloy but in case of UWB the grid surface is always made of expended copper mesh with tin coating followed by lead plating. Special purpose P1/Darak separators are used in UWBs unlike PVC separators in car batteries. The container of UWBs cells are made up from fibre Glass reinforced polymeric resins while in car batteries it is of PP or Hard Rubber. The covers of UWBs are also of FRP. During the manufacture of UWB, the element of cells is placed in rubber bag which is inserted in the FRP cell box and then hermitically sealed at the top with FRP lid rubber under sole. The outer walls joined using glass tapes and resin which can be cut only with mechanical saws, destroying the cells. The Pole straps are forged with electrolytic copper, machined and assembled thereafter tinned and finished with lead castings before assembly in the UWB. The metal content of a UWB is above 450 to 500 kgs. Two types of UWBs were manufactured.

(b) As regards actual fitment, as it appear from this affidavit that :-

"I say that the two types of UWB manufactured/sold/supplied were-one of 248 Cells and another of 460 Cells, both falling under Hdg. 85.07 of CETA-1985 and were exclusively supplied to and on the orders of Indian Navy. The form of supplies were in cells, with each cell weighing around 800 kgs. and being in 656 mm in length, 356 mm in width and 1093 mm in height. On reaching the submarines, these cells are to be positioned in different rows/groups in the pits in the submarines and are to be connected by special heavy-duty copper links. It is just not physically possible to connect these links and massive cells before transportation, from the Appellants end. Hence the cells are to be transported as cells only. These cells connected in the submarine and constituting the battery, but only a few cells require replacement during the course of their use, spread over for about four years. But the Navy, in its initial supply itself, takes the possession of the full set of cells of a battery, keeping 4 cells out of the battery of 248 cells and 12 cells out of the battery of 460 cells, to be used for replacement, as and when required, on failure of any one cell. I say that the letters/office Memorandum dated 26.4.1991, 24.1.1994, 8.7.1994 and August 1994 all of Ministry of Defence, Govt. of India Supports the above Submissions of the Appellant.

With reference to the parts of the cells, namely positive plates, negative plates, containers, covers and pole straps, also falling under Hdg. 85.07 of CETA-1985, say that the same were used by the Appellant in (heir manufacture by it, in the same factory, for the manufacture of cells of the above stated submarine batteries/cells supplied to Indian Navy. There was never any order for and/or demand for these parts from Indian Navy and the Appellant had also never sold/supplied these parts to any one. "

(c) As regards parts of the UWBs the affidavit categorically avers that they were manufactured and captively used for the manufacture ,of UWB and were never supplied to Indian Navy nor there was any order the same. These parts were used in UWBs without payment of duty.

3. a) A show cause notice cum demand notice dated 17.2.99 was issued demanding duty during the period 1.3.1994 to 15.2.99 as the benefit of notification 217/86 dated 2.4.86 was not available on the parts of the cells/UWBs manufactured and captively consumed since the final product viz cell/UWMs were cleared at NIL rates of duty. Allegation of suppression of manufacture and captive consumption of the parts was made to invoke the demands. Penalty proposals were also made along with interest liabilities on duties to be determined.

b) The appellants replied to the notice. Commissioner passed an order No. 41/99 dated 28.4.99 and confirmed the demands and penalties with interest. The Tribunal vide its order C-I/866-67199 WZB dated 2.3.2000 set aside the order & remitted on the grounds that the issue concerning the marketability of the subject products requires consideration as clear-cut findings based on material on marketability not arrived.

c) The Commissioner vide order 29.3.2003, now impugned before us again confirmed the demands of duty and penalties and interest.

Hence this appeal.

4. After hearing both sides and considering the issue it is found:-

a) findings as regards marketability arrived by the adjudicator are:-

"That the goods are battery parts is not in dispute because it has been admitted by them that all these components are supplied to Indian Navy. Therefore, when the assembly takes place, the batteries can be produced. These batteries when supplied to Indian Navy are termed as "goods". As claimed by the assessee, the batteries do not have market other than the Indian Navy. As has been admitted these parts are supplied to the Indian Navy and this itself shows that there exists a market in the form of Indian Navy and therefore, the parts which have been manufactured by the assessee and supplied to Indian Navy are goods. Moreover, the established law is that, it is not necessary to show that the goods should be actually bought and sold but it should be capable of being bought and sold. The impugned goods have distinct names known as such as in the trade and obviously are capable of being bought and sold and these are excisable. It has been admitted by the assessee that "cover" are purchased by them and therefore duty should not have been calculated on these covers. The admission on the part of the assessee that the cover have been purchased by them from the market itself suggests that these covers are marketable goods and have some purpose, for which these can be used. Whether the plates are big or small is not much material for treating them as "goods". Besides these goods have sufficient shelf life is not in doubt. The ratio of Supreme Court judgment in the case of Moti Laminates Pvt. Ltd. : 1995(76) ELT 241 SC is also applicable in this case as has been discussed above. On the basis of submissions made by the assessee, 1 find that there exists a market for these parts produced by them which is in the form of Indian Navy and therefore there is no need for carrying out separate verification on this point".

These finding based on it has been admitted by them that all these components are supplied to Indian Navy is in direct contract with the submissions of the appellants as recorded in paragraph 7 of the impugned order as follows:-

"They further pointed out that there was not a single instance of any sale to any outside party of the said battery cells. Hence there was no question of the said battery cells being marketable products. They also pointed out that the Department had not produced any evidence to show that the said battery cells are marketable products. They stated that the invoices 156-159 produced by the Department do not relate to submarine batteries at all, but to automotive batteries."

When the submissions made are not to the effect as being found, the findings therefore can not be approved and upheld which are derived from incorrect non existent material. Similarly no material is found to alluded which would cause to come to conclude that covers of UWBs were procured/purchased by the appellants. The appellants have submitted that the reliance on invoice No. 156 & 159 produced and relied by the department do not pertain to UWBs but are for automation batteries. These submissions are recorded by the adjudicator and no contrary finding is arrived. Therefore there is reason to conclude that no material on record exist to indicate sale/purchase transactions exist on/about parts of UWBs.

b) The statement of Shri P.R. Natrajan, Associate Vice President of UWB group, dated 17.12.93 recorded and the show cause notice dated 17.2.1998 make it very clear that the as per statement of Shri P.R. Natrajan to the effect :-

"....Positive Plates and Negative Plates; FRP containers are the parts of said battery cells which are manufactured in this unit. Most of the remaining parts are bought out and processed... "

and the show cause notice recording :-

".....It appears that the assessee has not filed classification list/declaration for positive plates, negative plates, negative 1/2 containers, covers, pole straps as parts of Under Water Batteries and not accurated... "

therefore admittedly when it only Positive Plates and Negative Plates & FRP containers that are the parts being manufactured, other parts being procured and processed to fit the UWBs. No material exist to doubt the statement of the Senior Executive no duty liability could arise on bought out parts like i.e. negative 1/2, covers, pole strips as made out in the Show Cause Notice since no evidence admissions exist of their being manufactured in the assessees premises. If at all, they are only procuring these parts and processing to assemble them in the UWB. Such an activity of procuring parts can not bring the levy on these parts under Section 3 of the Central Excise Act 1944 & discharged by on the appellants herein. The levy if any on such procured entities will be on the supplier. Therefore even if covers have been procured, as found by the adjudicator, that evidence would lead to covers being marketable and thus excisable, will not cause the visit of excise duty once again on such covers when processed for fitment in UWBs. No material admissions exist of them being manufactured. In any case sale/procurements of covers only can not conclude that other parts impugned viz. Positive Plate, Negative Plate & FRP containers, admittedly being manufactured are marketable or that parts like negative 1/2, pole straps are marketable.

c) from the affidavit brought on record and the material therein it would be apparent that the entities admittedly manufactured and alleged to be manufactured as per the notice are undisputedly made to specific designs and secret formulate and meet parameters specified by Quality Assurance Directorate of The Ministry of Defence. They are not Commercial standards and freely manufactured goods which are known in the open market to any person dealer/trader. Therefore there is force in the ld. Advocates submissions and reliance were placed on the decision of the Supreme Court in the case of Union of India v. Sonic Electrochem (P) Ltd. (: 2002 (145) ELT 274 (S.C.). Therein the court had while dealing with the specific designed body of EMR, would satisfy the criteria of marketability for levy of excise duty held -

"...... The essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, is it the Commercial identity of the articles known to the market for being bought and sold. The fact that the product in question is generally market would be irrelevant. The plastic body of EMR does not satisfy the aforesaid 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 plastic body of EMR of the respondent either for replacement or other wise are can not get it is the market because at present it is not a commercially known product. For these reasons, the plastic body, which is a part of the EMR of the respondents, is not goods so as to he liable to duty as parts of EMR...."

This ratio when considered with the facts that:-

(i) The parts impugned herein are incapable of replacement and never proved/alleged to be replaced.

(ii) They are made to secret specifications not available and open to others as per contract for UWBs supply and can not be manufactured separately for commercial trading (see paragraph 25 of purchase order of Indian Navy).

(iii) No orders for replacement of there alleged parts ever made by the Navy.

(iv) No actual evidence of sale price transaction on record of similar/comparable goods.

would be leading to the finding and only conclusion that the entities impugned are not goods as known to the open market and therefore under Excise Law. No duty levy could be determined on the entities impugned in these proceedings. The reliance of the ld. DR on the case of Cadila Laboratories Pvt. Ltd. (: 2003 (152) ELT 262 (SC) to the effect that actually bought and sold in the market is not essential, capability would render marketability in this case will help the appellants. Indian Navys secret goods are not allowed or and permissible there to be bought to market is per contract clauses. They are not capable for pragmatic marketing. Thus not excisable goods (See. CCE v. Ambalal Sarabhai Enterprises (: 1989 (43) ELT 214 SC).

(d) When no levy is found to be attracted in the hands of the appellants under the Central Excise Act 1944 on the entities as enumerated in the show cause notice, no need arises to arrive at findings about the eligibility to notifications and plea of limitations, which were urged before us and have considerable force.

4. Since there can not be levy of duty on the entities, the demands, penalties and interest as arrived are not upheld. The same are to be set aside.

5. Consequently the appeal is to be allowed.

6. Ordered accordingly.

Pronounced on 02/07/2004