SC Confirms Levy of Excise Duty on Perfumery Compounds as it is ‘Marketable’ [Read Judgment]

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A three-judge bench of the Supreme Court of India, last week, ruled that perfumery compounds are subject to excise duty under the Central Excise Act, 1944 since they are capable of being sold in the open market.

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 them in their Bangalore factory and then transferred to their Mysore factory where finally it is applied on raw agarbathis.

Till the year 2001, the assessee paid excise duty on the above product. However, the Central Government, vide its circular, 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 department took a view that the perfumery compound manufactured by the assessee is subject to excise duty.

On appeal, the CESTAT reversed the order by holding that in the absence of actual sale of such substance, no excise duty could be levied on the same.

Aggrieved by the order, the department approached the Supreme Court challenging the order.

The bench noticed the decision in Escorts Limited vs. Commissioner of Central Excise, Faridabad wherein the Court has held that for excise duty to be chargeable under the constitutional entry read with Section 3 of the Central Excise Act, two prerequisites are necessary.

A bench comprising Justices Madan B Lokur, Abdul Nazeer and Deepak Gupta noted that “First, there must be “manufacture” which is understood to mean the bringing into existence of a new substance. And secondly, the word “goods” necessarily means that such manufacture must bring into existence a new substance known to the market as such which brings in the concept of marketability in addition to manufacture. ‘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 goods are not in fact marketed is of no relevance. So long as the goods are marketable, they are goods for the purposes of Section 3 of the Act. It is also not necessary that the goods in question should be generally available in the market. The marketability of articles does not depend neither upon the number of purchasers nor is the market confined to the territorial limits of this country.”

Quashing the CESTAT order granting relief to the assessee, the bench ruled that in the 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. As noticed above, the assessee had sold certain quantity of perfumery compound to M/s. Tibetan Handicrafts Centre Bylkuppe, Mysore District.”

Read the full text of the Judgment below.

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