Supreme Court of India
COLLECTOR OF CENTRAL EXCISE, PATNAversusM/S. TATA IRON AND STEEL CO. LTD.
- Citation
- 2004 INSC 131
- Decided
- 26 February 2004
- Disposal
- Dismissed
- Bench
- S RAJENDRA BABU
Holding
Zinc dross and flux skimming are refuse, not marketable commodities, and therefore are not excisable goods under the Central Excise Act, 1944.
Summary
The respondents, manufacturers of steel sheets, generate zinc dross and flux skimming as waste during the galvanisation process. The Revenue treated these residues as marketable commodities, issuing show‑cause notices for excise duty and penalty. The assessees argued that the residues are merely refuse, not goods within the meaning of the Central Excise Act, 1944, and therefore not liable to duty. The Supreme Court examined the nature of the residues, applying the test that excisable goods must be a new, distinct article that is marketable in commerce, and held that zinc dross and flux skimming are merely waste or rubbish, not marketable commodities. Consequently, the Court found no manufacture of a new article and dismissed the Revenue’s appeals, granting the assessees refund of any duty and penalty paid.
Issues considered
- Whether zinc dross and flux skimming arising from galvanisation of steel sheets qualify as 'excisable goods' under the Central Excise Act, 1944.
- Whether the presence of the residues in a tariff heading makes them liable to excise duty irrespective of their nature.
Legislation cited
- Central Excise Act, 1944s. 2(d), s. 3
- Central Excise Rules, 1944s. Rule 174, s. Rule 56A, s. Rule 9(2)
- Central Excise Tariff Act, 1985
Subjects
central exciseexcisable goodszinc drossflux skimmingwasterefusemarketable commoditytariff classificationmanufacturetax exemption
Judgment
A COLLECTOR OF CENTRAL EXCISE, PATNA
v.
M/S. TATA IRON AND STEEL CO. LTD.
FEBRUARY 26, 2004
B [S. RAJENDRA BABU, DR. AR. LAKSHMANAN AND G.P.
MATHUR, JJ.]
Central Excise Act, 1944-Sections 2(d) & 3-Central Excise Tariff Act,
1985-Zinc dross and Flux skimming arising out of galvanisation of steel
C sheets-Levy of excise duty by Revenue treating them as excisable goods-
Correctness of-Held, Zinc dross and flux skimming are refuse and are not
marketable commodities and hence not liable to excise duty.
Respondent-assessees are engaged in the manufacture of steel sheets
D and galvanisation of steel sheets. During the process of galvanisation, two
products-zinc dross and flux skimming - come into existence. The Revenue
found that the two products were sold by the assessees without payment
of excise duty under the Central Excise Act, 1944. The Revenue issued
show cause notices to the assessees demanding excise duty and penalty by
treating them as marketable commodities. In reply to the show cause
E notices, the assessees contended that the products are not marketable
goods and hence are not excisable goods liable to excise duty under
Central Excise Tariff Act, 1985.
Collector dismissed the appeals of the assessees and ordered
-
confiscation/redemption of goods. In appeal, CEGAT set aside the orders
F of the Collector.
In appeal to this Court, Revenue contended that zinc dross and flux
skimming are 'excisable goods' under the Central Excise Act, 1944 since
they are covered under the Heading 79.02 sub-heading 7902.00 of Chapter
79 of the Central Excise Tariff Act, 1985 before amendment on 1.03.1988
G and after amendment under the Heading 2620 Sub-heading 2620 of
Chapter 26 of the Tariff Act.
The respondents contended that the zinc dross and flux skimming
are waste products in the process of galvanisation of steel sheets and
H 712
C.C.E. v. TATA IRON AND STEEL CO. LTD. 713
-- hence are not excisable goods under the Central Excise Act, 1944.
Dismissing the appeals, the Court
A
HELD: The dross and skimming are merely refuse, scum or rubbish
in the process of manufacture of aluminium sheets and, therefore, cannot
be said to be the result of treatment, labour or manipulation whereby a B
new and different article emerges with a distinctive name, character or
use which can ordinarily come to the market to be brought and sold.
Merely because such refuse or scum may fetch some price in the market
does not justify it being called~ by-product, much less an end product or
-- a finished product. The dross and skimming are not marketable
commodities by merely selling them. Everything which is sold is not C
necessarily a marketable commodity as known to commerce and which,
it may be worthwhile to trade in. The zinc dross and skimming, arising
as refuse during galvanisation process, are not excisable goods.
[719-C; 726-F-G}
D
Union of India v. Indian Aluminium Co. Ltd, (1995) 77 ELT 268 SC
relied on.
Tata Iron & Steel Company Limited v. CCE, Patna (2001) 135 ELT
1142; Union of India v. Delhi Cloth and General Mills Co. Ltd, AIR (1963)
SC 791; Collector of Central Excise, Patna v. Indian Tube Co. Ltd., (1995) E
77 ELT 21 SC; Commr. of Central Excise, Chandigarh-I v. Markfed
Vanaspati & Allied Indus., (2003) 153 ELT 491 SC and Union of India v.
Ahmedabad Electricity Co. Ltd, (2003) 158 ELT 3 SC, referred to.
Indian Alluminium Co. Ltd v. A.K. Bandhopadhyay, (1980) 6'ELT 146
(Born), referred to. F
CIVIL APt>ELLA TE JURISDICTION : Civil Appeal Nos. 524-525 of
1998.
From the Final Order dated 29.8.97 of the Central Excise Customs and
Gold (Control) Appellate Tribunal, New Delhi in F.O No.E/1296-1297 of G
1997-Bl in A.No. E/2966-2967 of 1998-Bl.
WITH
C.A. Nos. 5664/2002 and 5262 of 2003.
H
714 SUPREME COURT REPORTS [2004] 2 S.C.R.
A A.K. Ganguli, Dileep Tandon, Hemant Sharma and B. Krishna Prasad
for the Appellant.
J. Vellappally, Ajay Aggarwal, Ms. Shirin Khajuria, Punit Bhardwaj,
Rajan Narain, Rajesh Kumar, Alok Yadav, V. Lakshmikumaran and Rajesh
Kumar for the Respondent.
B
The Judgment of the Court was delivered by
DR. AR. LAKSHMANAN, J. In these appeals, we are concerned with
the question of levy of excise duty on zinc dross and flux skimming arising
c
during galvanisation of steel sheets.
BRIEF FACTS OF THE CASE:
--
During galvanisation of steel sheets, zinc dross and flux skimming
arises which the respondent/assessee has declared as by- product in their
product manual published by the Marketing Division for information of
D customers. It has been alleged that zinc dross and flux skimming are being
sold by the assessee to various customers without making any declaration in
the classification list, without paying any duty on clearance of the above
product and without maintaining any records prescribed under the Central
Excise Rules, 1944 besides showing them as non-excisable in their Despatch
E Advices. According to the Department, the assessees have cleared the goods
without payment of duty and thus evaded duty in contravention of the Central
Excise Rules, 1944 and in doing so they did not obtain Central Excise licence
for manufacture of zinc dross and flux skimming as required under Rule 174
of the Central Excise ·Rules, 1944 inasmuch as they have suppressed the
production and removal of the said goods with intent to evade payment of
F duty.
-,
CASE FOR THE DEPARTMENT:
A show cause notice was issued to the assessee to show cause why a
penalty should not be imposed on them under the provisions of the Central
G Excise Rules, 1944 and why the duty be not demanded under Rule 9 (2) of
the Central Excise Rules, 1944.
CASE FOR THE PARTY:
In response to the show cause notice, the assessee made a written
H defence denying all the allegations of contravention of various Central Excise
C.C.E. v. TAT A IRON AND STEEL CO.LTD. [LAKSHMANAN, J.] 715
-- Rules and stated that flux skimming is a material held as non-excisable by
the CEGA T. In support of their contention, they have cited various judgments
A
and, in particular, the case of Indian Aluminium Co. ltd. v. A.K.
"""- Bandyopadhyay, (1980) 6 E.L.T. 146 (Born.)] stating further that dross and
skimming are neither goods nor end products nor finished goods attracting
duty under item 25 of the Central Excise Tariff. As regards zinc -dross, they
have claimed to clear the item as non-excisable as per the decision of the B
Bombay High Court.
rt is the contention of the assessee that they do not manufacture zinc
and article thereof but they do galvanise sheets falling under Chapter 72.
...:..... Since zinc dross and flux skimming have already been held to be non-excisable
item, the issue of gate passes for removal of products and submission of
c
quarterly returns etc. and filing classification list does not arise. All the
assesses have denied violation of the Central Excise Rules, 1944. They have
further stated that they submitted classification list and are in the bona fide
impression that the goods are non-excisable and are not manufactured by
them and, therefore, the question of imposing penalty under any rule is out D
of question.
In Civil Appeal Nos. 524 and 525 of 1998, the Collector of Central
Excise, Patna ordered for confiscation of the zinc dross. However, the Collector
gave the manufacturers the option to redeem the goods -on payment of
redemption fine. A penalty was also imposed on the manufacturer. The assesses E
preferred an appeal to the CEGA T, New Delhi which set aside the order of
the Collector, Central Excise relying upon the decision of this Court in the
case of Union of India v. Indian Aluminium Co. Ltd., (1995) 77 E.L.T. 268
S.C. Aggrieved by the said decision, the Commissioner of Central Excise,
Patna preferred the above two appeals. F
In Civil Appeal No. 5262 of2003 Mis National Steel Industries Limited
now known as Mis National Steel and Agro Industries Limited filed declaration
classifying the zinc dross under Heading 7902.00 of the Schedule to the
Central Excise Tariff Act, 1985. According to the assessee, they filed
declaration claiming the zinc dross as non-excisable commodity and continued G
to clear zinc dross without payment of duty up to December, 1997. Later,
they paid duty under protest. A show cause notice was issued as to why zinc
(•
dross should not be classified under Heading 7902.00 and why excise duty
should not .be recovered. The Deputy Commissioner of Central Excise held
the goods classifiabl\! under Heading 7902 of the Central Excise Tariff Act,
H
716 SUPREME COURT REPORTS [2004] 2 S.C.R.
A 1985 and confirmed the payment of penalty which was imposed. The .,
Commissioner (Appeals) rejected the appeal filed by the assessee. The
--
Tribunal, on appeal by the assessee, set aside the order in appeal holding that
zinc dross and flux skimming are not excisable goods following the decision
of this Court in Indian Aluminium Co. Ltd (supra). The Tribunal further
B relied on the decision in the case of Tata Iron and Steel Company Limited
v. CCE, Patna, (2001) 135 E.L.T. 1142 and Siddarth Tubes Limitedv. CCE,
Indore dated 08.04.2002 which referred to the judgment in the case of Indian
Aluminium Co. Ltd. (supra). Before the Tribunal, it was submitted by the
Department that zinc dross is a distinct commercial commodity and hence
liable to excise duty.
c Civil Appeal No. 5664 of 2002 also arises out of similar circumstances.
In this appeal, according to the assessee, zinc dross and zinc scalling does not
constitute to be excisable goods as defined in Section 2(d) of the Central
Excise Salt Act, 1944 and, therefore, they filed refund claims for amount of
duty paid on zinc scalling.
D
According to the Department, prior to 01.03.1988 as per Chapter· Note
3 of Chapter 26 ash and residue other than dross and ash of zinc containing
metals or metallic compounds applies only to the ash and residue of a kind
used in industry either for the extraction of metals or as a basis for the
manufacture of chemical compound of metal. This chapter note was
E subsequently amended w.e.f. 01.03.1988 by omitting the words "other than
dross and ash of zinc containing metals of metallic compounds". Thus, prior
to 01.03.1988 the said dross and ash of zinc containing metals or metallic
compound were classifiable under 7902 and subsequent to 01.03.1988 the
said product got classified under sub- heading 26.20.
F
Here also a show cause notice was issued and the Assistant
Commissioner rejected the refund claim holding that the ash cleared by the
noticee (assessee) contains metals and oxide of zinc and the same is also used
for the extraction of metal as a basis for the manufacture of chemical
compounds of metal and they are marketable and also answer of the description
G of chapter heading. Therefore, they contended that the same is correctly
classifiable under Chapter heading No. 26.20 of the Central Excise Tariff
Act, 1985. The assessee's appeal before the Commissioner was also rejected
and the further appeal by the assessee before the CEGAT was allowed relying
on the judgment of this Court in Indian Abiminium Co. Ltd. (supra). The
H Tribunal, following the judgment of this Court, categorically held that zinc
C.C.E. v. TATA IRON AND STEEL CO. LTD. [LAKSHMANAN, J.]717
- dross and zinc scalling are not goods, hence not excisable.
We have perused the relevant records and the rules i.e. the Central
A
Excise Rules and of the orders passed by the respective authorities and of the
CEGAT and heard. the arguments of Mr. A.K. danguli and Mr. J. Vellapally
- learned senior counsel appearing for the respective parties. Mr. Rajesh
Kumar and Mr. Alok Yadav, learned counsel in other appeals adopted the B
- arguments of learned senior counsel.
Mr. Ganguli, learned senior counsel, appearing 011 behalf of the appellant
submitted that sub-heading 7902.00 of the Central Excise Tariff includes
waste and scrap of zinc and waste and scrap of zinc include dross and ash.
According to Mr. Ganguli, the case of Indian Aluminium Co. Ltd. (supra)
c
relates to aluminium dross and skimming and the definition of aluminium
waste and scrap does not include dross and skimming and, therefore, zinc
dross and skimming are covered under sub-heading No. 7902.00 of the Central
Excise Tariff Act, 1985. He, therefore, prays that the appeals filed by the
appellant be allowed. He would further submit that prior to 01.03.1988, as D
per Chapter Note 3 of Chapter 26 ash and residue other than dross and ash
of zinc containing metals or metallic compounds applies only to the ash and
residue of a kind used in industry either for the extraction of metals or as a
basis for the manufacture of chemical compound of metal. This chapter note
was subsequently amended w.e.f. 01.03.1988 by omitting the words "other
than dross and ash of zinc containing metals of metallic compounds". Thus E
- he submits that prior to 01.03 .1988, the said dross and ash of zinc containing
metals or metallic compound were classifiable under 7902 and subsequent to
01.03.1988 the said product got classified under sub-heading 26.20. It was
contended that a close reading of the above chapter note reveals that the
heading 26.20 covers ash and residue which contain metal or metallic F
compounds and which are of kind used in industry either for the extraction
of metal or metallic compound or as basis for the manufacture of chemical
compound of metals.
Countering the argument, Mr. J. Vellapally, learned senior counsel for
the respondent, submitted that zinc dross and flux skimming were waste G
products in the process of galvanisation of steel sheets and are not goods
under the Central Excise Act, 1944 and that the process of galvanisation
- merely involves the steel sheets through a batch of molten zinc whereby the
said sheets acquire a coat of zinc on the surface resulting in galvanisation and
that zinc dross is merely the impurity which arises as a result of the process
H
718 SUPREME COURT REPORTS [2004] 2 S.C.R.
A of galvanisation and settle to the bottom. During the same galvanisation
process, ammonium chloride is used as a flux for cleaning the impurities
from the sheets. This ammonium chloride when mixed with molten zinc also
creates some impurities in the form of flux which floats to the surface. This
flux is periodically skimmed off the surface of the zinc and these are known
B as 'flux fkimming'. Learned counsel would further submit that zinc dross
and flux skimming are nothing but refuse products and these are not
marketable. Learned counsel relied on the decision of this Court being Indian
Aluminium Co. Ltd. (supra) and submitted that this Court held that aluminium
dross and skimming are neither goods nor marketable commodity and,
therefore, not liable to excise duty and he, therefore, prays that the appeals
C filed by the appellant be dismis_sed.
On the above pleadings and of the arguments, the following questions
of law may arise for determination of this Court.
The i~sue which arises for consideration is that whether zinc dross and
D flux skimming arising during galvanisation of steel sheets are goods within
the meaning of the Central Excise Act, 1944 and are liable to central excise
duty as classified by the Revenue
OR
E Whether zinc dross and flux skimming are waste products in the process
of galvanisation of steel sheets and are not goods under tpe Central Excise
Act, 1944 as claimed by the assessee.
In this case, the ·respondents are engaged in the manufacture of steel
sheets and are also galvanising steel sheets. During the process of galvanisation,
F zinc dross and flux skimming c0me into existence. The contention of the
assessee is that these flux and zinc dross are the waste and are not marketable.
The High Court of Bombay in the case of Indian Aluminium Co. Ltd. (supra)
held that dross and skimming are neither goods nor en-products. As seen
earlier, dross is nothing but scum thrown off from metals in something;
G refuse and rubbish or worthless impure metal and skimming is that which 1s
removed or obtained from the surface by skimming. These are, in our opinion,
nothing but ashes resulting in the process of manufacture of aluminium' sheets
from aluminium ingots. In Union of India v. Delhi Cloth and General Mills
Co. Ltd., AIR (1963) SC 791 it was held that "goods" must be something
which can ordinarily come to the market and be brought and sold and that
H the "manufacture" which is liable to excise duty under the Central Excise and
- C.C.E. v. TATA IRON AND STEEL CO. LTD. [LAKSI-IMANAN, J.]719
Salt Act, 1944 must, therefore, be the "bringing into existence of a new
substance known to the market".
A
The passage runs thus :-
"Manufacture" implies a change but every change is not manufacture
and yet every change of an article is the result of treatment, labour B
and manipulation. But something more is necessary and there must
be transformation; a new and different article must emerge having a
distinctive name, character of use."
We are of the opinion that the dross and skimming are merely the
refuse, scum or rubbish through out in the process of manufacture of aluminium C
sheets and, therefore, cannot be said the result of treatment, labour or
manipulation whereby a new and different article emerges with a distinctive
name, character or use which can ordinarily come to the market to be brought
and sold. Merely because such refuse or scum may fetch some price in the
market does not justify it being called a by-product, much less an end product
or a finished product. D
This view of the High Court of Bombay was upheld by this Court in
Indian Aluminium Co. Ltd. (supra).
This Court held as under:
E
"It is also not possible to accept the contention of the appellants
that aluminium dross and skimmings are "goods" or marketable
commodity which can be subjected to the levy of excise. Undoubtedly,
aluminium dross and skimmings do arise during the process of
manufacture. But these are nothing but waste or rubbish which is
thrown up in the course of manufacture. The term "dross" is defined F
-- in The New Shorter Oxford Dictionary as:
Dross:
"Dregs(l) Impurities separated from metal by melting the scum
which forms on the surface of molten metal(2) Foreign matter mixed G
with anything .. (3) Refuse, rubbish, worthless matter especially as
contrasted with or separated from something of value."
The ASM Metals Reference Book (2nd Edition, 1983) produced by the
American Society for Metals defines "dross" as follows:
H
720 SUPREME COURT REPORTS [2004] 2 S.C.R.
A "The scum that forms on the surface of molten metals .largely
because of oxidation but sometimes because of the rising of impurities
to the surface."
Mcgraw Hill Dictionary of Science and Engineering (1984 Edition)
defines it as:
B
"An impurity, usually an oxide, formed on the surface of molten
metal."
Dross and skimmings may contain some small percentage of metal.
But dross and skimmings are not metal in the same class as waste or
c scrap. It may be possible to recover some metal from such dross and
skimmings. They can, therefore, be sold. But this does not make
them a marketable commodity. As learned Single Judge of the Bombay
High Court has pointed out, even rubbish can be sold. Everything,
however which is sold is not necessarily a marketable commodity as
known to commerce and which, it may be worthwhile to trade in.
D Learned Single Judge of the Bombay High Court, therefore, rightly
came to the conclusion that the proviso to Rule 56A was not applicable
as aluminium dross and skimmings are not excisable goods.
The entire quantity of raw material, namely duty-paid aluminium
ingots procured by the assesses from outside was used in the
E manufacture of aluminium sheets. It is nobody's case that the
'aluminium sheets which were manufactured by the assesses could
have been manufactured out of a lesser quantity of aluminium ingots
--
than what was actually used. In the process of manufacture, dross and
skimmings had to be removed in order that aluminium sheets of the
F requisite quality could be manufactured. This does not mean that the
entire quantity of aluminium ingots was not used for the manufacture
of aluminium sheets. In the course of manufacture, a certain quantity
-
of raw mate~ial may be lost because of the very nature of the process
of manufacnli.re or some small quantity ofraw material may form part
of wastage or ashes. This does not mean that the entire raw material
G was not used in the manufacture of finished excisable products. An
exact mathematical· equation between the quantity of raw material
purchased and the raw material found in the finished product is not
possible, and should not be looked for.
Under Tariff Item 27 "Waste and Scrap of Aluminium" is one of the items
H exigible to excise duty. An explanation was added to Tariff Item 27 by the
C.C.E. v. TAT A IRON AND STEEL CO. LTD. [LAKSHMANAN, J.] 721
Finance Act, 1981 to the following effect: A
"27. Explanation (1) 'Waste and Scrap' means waste and scrap metal
fit only for the-~very of metal by remelting or for use in the
manufacture of chemicals, but does not include sludge, dross, scalings,
skimmings, ash and other residues;"
B
- Tariff Item 68 which was introduced for the first time in 1975 was as
fo11ows:
"68. All other goods, not elsewhere specified, but excluding-
..... * ** * * ******** **
(a) c
(b) * * * * * * * * * * * * * * *
(c) ***************
Explanation For the purposes of this Item, goods which are
referred to in any preceding Item in this Schedule for the purpose D
of excluding such goods from the description of goods in that
item (whether such exclusion is by means of an Explanation to
such Item or by words of exclusion in the description itself or
in any other manner) shall be deemed to be goods not specified
in that Item."
The question in all these appeals relates to the exigibility of aluminium E
dross and skimmings to excise duty by reason of Item 68 and its
Explanation read with the Explanation to Item 27. It is contended by
the appellants that the Explanation to Item 27 makes it clear that
dross and skimmings are not included in the item "Waste and Scrap
of Aluminium". Since these are expressly excluded from Item 27, F
these must be included in Item 68 as the Explanation to Item 68
makes it clear that goods which are referred to in any preceding Item
in the Schedule for the purpose of excluding them from the description
of goods in that Item, will have to be included in Item 68.
The entire argument proceeds on the basis that aluminium dross and G
skimmings are excisable goods. Otherwise the question of their
inclusion in Tariff Item 68 does not arise. The appellants have
emphasized the fact that aluminium dross and skimmings are capable
of being sold. Hence they must be considered as marketable goods.
Since they arise in the course of manufacture, the duty of excise can H
722 SUPREME COURT REPORTS [2004] 2 S.C.R.
A be levied on such goods. The foundation of the arguments rests on
the assumption that aluminium dross and skimmings are marketable
goods. For reasons which we have set out earlier, it is not possible
to consider aluminium dross and skimmings as "goods" or as a
commercial and marketable commodity. Dross and skimmings are
merely refuse or ashes given out in the course of manufacture, in the
B process of removing impurities from the raw material. This refuse is
quite different from waste and scrap which is prime metal in its own
right.
The Explanation to Item 27 is not for the purpose of separating
certain types of wastes and scrap from the main Item of "Waste and
c Scrap of aluminium" and thus making it exigible to tax under Item
68. The Explanation to Item 27 merely excludes from waste and
scrap certain residues or rubbish which cannot be categorised as
"goods" at all. It is only those goods, which are otherwise liable to
be included in a given Tariff Item, but are expressly excluded from
D it, which fall under the residuary Tariff Item 68. The Customs, Excise
and Gold (Control) Appellate Tribunal in its order, which is the subject-
matter of Civil Appeal No. 1423/87, has given several examples of
this kind of exclusion which is covered by the Explanation to Tariff
Item 68. It has given the illustration of a motor specially designed for
use in a gramophone or record player which is expressly excluded
E from Tariff Item 30 which covers. electric motors. These exduded
motors are also motors, but because of some peculiar characteristics
imparted to them in their manufacture, they are excluded for
assessment under Tariff Item 30. Similarly, slotted angles and channels
made of steel which can be used as part of steel furniture, are expressly
F excluded from Tariff Item 40 which covers steel furniture and parts.
These exclusions are for the purpose of correct assessment of these
excisable products. These excluded articles are "goods" in their own
right, and are openly bought and sold in the market. Such excluded
items, if they are not covered by any other item; would fall in the
residuary Item 68 by virtue of the Explanation to Tariff Item 68.
G
In Collector of Central Excise, Patna v. Indian. Tube Co. Ltd., [1995]
77 E.L. T. 21 (S.C.), this Court has approved the reasoning of the Tribunal
that the diluted sulphuric acid, i.e., liquid which remains after user, cannot be
said to be a manufactured product and hence not liable to duty and that waste
pickle liquor is in the nature of waste product and has neither marketability
Ii
.
".'! C.C.E. v. TAT A IRON AND STEEL CO. LTD. [LAKSHMANAN. J.) 723
..............
nor saleability and, therefore, not liable to duty. A
In Commr. ofC.Ex., Chandigarh-Iv. Markfed Vanaspati & Allied Indus.,
(2003) (153) E.L.T. 491 (S.C.), the question for consideration in this case
was whether "spent earth" is liable to excise duty or not Under the Tariff,
prior to its amendment in 1985, it had been consistently held that "spent
earth" was not liable to duty. However, with the enforcement of new Tariff B
.,___ in 1985, a conflict arose between various benches of the Tribunal. Some
benches held that "spent earth" was still not excisable, whereas other benches
iield that, as it now stood included by a specific sub-heading, it became
-- excisable. In view of these conflicting decisions, the matter was placed before
the Larger Bench of the CEGA T which held that "spent earth" was still not
dutiable. In the appeal preferred before this Court, this Court held the burden
to prove that there is manufacture and that what is manufactured is on the
c
Revenue and that merely because an item falls in a Tariff entry, manufacture
must not be deemed. In para 6, this Court held as under:
"6. However, it appears to us that the observation made in this authority
D
are "per incuram". In so observing, the decision of a Larger Bench
of this Court in the case of Collector of Central Excise, Indore v.
Universal Cable Ltd. Reported in [ 1995 Supp (2) SCC 465], has not
been noted or considered. In this case an argument that a good become
~
excisable because it is covered by Tariff Entry, has b~en negatived.
In the case of B.P.L. Pharmaceuticals Ltd. v. Collector of Central E
,__ Excise reported in [ 1995 Supp (3) SCC l] it has also been held that
merely because there is a change in the Tariff Item the goods does
not become excisable. Subsequently in a judgment dated 13th
February, 2003 in Civil Appeal.No. 6745 of 1999 it has been held
that merely because an item falls in a Tariff Entry, it does not become
.,.._.. excisable unless there is manufacture and the goods is marketable. In
F
Lal Woollen & Silk Mills' case (supra) it has not been held that the
twin test of manufacture and marketability is not to apply. It is not
possible to accept the contention that merely because an item falls in
a Tariff Entry it must be deemed that there is manufacture. The law
still remains that the burden to prove that there is manufacture and G
that what is manufactured is on the revenue. In this case, no new
evidence is placed to show that there is manufacture. "Spent earth"
._ was "earth" on which duty has been paid. It remains earth even after
the processing. Thus if duty was to be levied on it again, it would
amount to levying double duty on the same product."
H
724 SUPREME COURT REPORTS (2004] 2 S.C.R.
A In Union of India v. Ahmedabad Electricity Co. Ltd., (2003) 158 E.L. T.
3 (S.C.), the question which arose for consideration was regarding exigibilty
of 'cinder' to excise duty. The respondent in the said appeals use coal as fuel
for producing steam to run the machines used in their factories to manufacture
the end product. Coal is burnt in the boilers or furnaces for producing steam.
B Normally, coal when it is burnt in boilers is reduced to ash. Some part of coal
does not get fully burnt because of its low combustible quality. This unburnt
. or half burnt operation of coal is left out in the boilers. It is called 'cinder'.
A point was posed for determination by this Court in para 7 of this judgment
which is quoted hereinbelow.
"7. Whether inclusion of an item in the entries to the First Schedule to
c the Tariff Act per se makes the item exigible to excise· duty?
It is useful to reproduce the relevant paragraphs of the judgment which
read as under:
"We are unable to accept the proposition advanced by the learned
D
Additional Solicitor General. A close look at Section 3 of the Central
Excise Act shows that the words 'excisable goods' have been qualified
by the words "which are produced or manufactured in India".
Therefore, simply because goods find mention in one of the entries
of the First Schedule does not mean that they become liable for
E payment of excise duty. Goods have to satisfy the test of being
produced or manufactured in India. It is settled law that excise duty
is a duty levied on manufacture of goods. Unless goods are
manufactured in India, they cannot be subject to P,ayment of excise
duty. There is no merit in the argument that simply because a particular
item is mentioned in the First Schedule, it becomes exigible to excise
F duty. [See Hyderabad Industries Ltd. and Anr. v. Union of India and
Ors., [1995] 5 SCC 338 and Moti Laminates Pvt. Ltd. and Ors. v.
Collector of Central Excise, Ahmedabad, [1995] 3 SCC 23. Therefore
both on authority and on principle, for being exigible to excise duty,
excisable goods must satisfy the test of being produced or
G manufactured i,n India. The arguments to the contrary is rejected.
Recently this Court had occasion to deal with a case of excise
duty sought to be levied on 'spent earth'. This was in Commissioner
of Central Excise, Chandigarh v. Markfed Vanaspati & Allied
Industries, (2003) 153 E.L.T. 491. Excise duty was being paid on
H "earth", 'spent earth' is a residue resulting from treatment of fatty
-· C.C.E. v. TATA IRON AND STEEL CO.LTD. [LAKSHMANAN. J.] 725
substances. The 'spent earth' remained 'earth' even after processing A
though its capacity to absorb was reduced. It was held that no excise
duty was Ieviable on 'spent earth'. The facts in this case are quite
similar to the facts of the case in hand. In Markfed case 'earth' was
reduced to 'spent earth' with a reduced potency to absorb. In the case
in hand, coal was reduced to inferior quality coal which was no
longer of use in the furnaces in the factories, therefore, it could be
B
reasonably be said that 'cinder' i.e. coal of reduced quality still was
coal and not exigible to excise duty.
--- In Modi Rubber Ltd, Modi Nagar, UP. and Anr. v. Union of
India and Ors., (1987) 29 E.L.T. 502 (Del.)] it was held that waste/
scrap obtained not by any process of manufacture but in the course
of manufacturing the end product was not exigible to excise duty.
c
This was a case of manufacture of tyres, tubes etc. In the course of
manufacturing process to produce the end product i.e. tyres, tubes,
flaps etc. waste was obtained in the shape of cuttings. It was held that
this was not exigible to tax even though the waste may have some D
saleable value. The essential reason for this was that there was no
transformation in the case of waste/scrap to a new and different article.
No new substance having a distinct name, character and use was
brought about. Manufacturing process involved treatment, labour or
manipulation by the manufacturer resulting in a new and different
article. It requires a deliberate skilful manipulation of the inputs or E
the raw materials. This was not so in case of scrap.
It is worth mentioning that in UOI and Ors. v. Indian Aluminium
Co. Ltd. and Anr., [1995] Suppl; 2 SCC 465, it was held that waste
or rubbish which is thrown up in the course of manufacture could not
----· be said to be a produce of manufacture exigible to excise duty. In this
case the assesses manufactured aluminium products out of the
F
aluminium ingots. In the process of manufacture dross and skimmings
arise and accumulate in the furnace in the shape of ashes as a result
of oxidization of metal. Aluminium dross contain an amount of metal
from which they come but they Jack not only metal body but also G
metal strength, formability and character. Such dross and skimmings
are distinct from scrap which is a metal of good quality. Dross and
- skimmings though obtained during process of manufacture were held
to be not exigible to excise duty at the relevant time. Since the dross
and skimmings were sold in the market it was argued that they were
~
H
726 SUPREME COURT REPORTS [2004] 2 S.C.R.
A a marketable commodity and should be subject to levy of excise
duty. The Court observed that these were nothing but waste or rubbish
which is thrown up in the course of manufacture. This judgment also
answers the argument of the learned counsel for the appellant based
on Khandelwal Metal's, case [ 1985] 3 SCC 620 wherein brass scrap
produced during manufacturing of brass goods were considered to be
B liable to excise. In the present case, cinder though sold for small price
cannot be said to be a marketable commodity in the sense the word
" marketable" is understood. Due to sheer necessity cinder has to be
removed from the place where it occurs because unless removed it
will keep on accumulating which in tum lead to loss of precious
c space. Facts noted in TISCO's case by the lower authorities show that
TiSCO had been paying substantial amounts for removing cinder to
a dumping ground. From the dumping ground, it was picked up by
parties to whom it was sold. As per the averment, TISCO is spending
many times more on removing cinder than what it realizes. from its
sale. These are matters of fact which have not been gone into by the
D authorities concerned and therefore it is too late for us to· go into all
this.
Applying the tests laid down in these judgment, it is not possible
to say that cinder satisfied the requirement of being manufactured in
India."
E
This Court, in conclusion, held that the onus to show that particular
goods on which excise duty is sought to be levied have gone through the
process of manufacture in India is on the Revenue and that the Revenue have
done nothing to ~ischarge this onus. ·
F In our opinion, this Court in Indian Aluminium Co. Ltd. (supra) has
held that merely selling does not mean dross and skimming are marketable
commoditY as even rubbish can be sold and everything, however, which is
sold is not necessarily a marketable commodity as known to commerce and
which, it may be worthwhile to trade in. The issue involved in this case is
G governed by the past decisions of the Tribunal and also of this Court where
the Tribunal and this Court held that the zinc dross and skimming. arising as
refuse during galvanisation process are not excisable goods. The Tribunal, in
our opinion, has rightly relied upon the decision of this Court in Indian
Aluminium Co. Ltd. (supra) and in view of the above decision of the Tribunal
following this Court'.s opinion in Indian Aluminium Company Limited (supra),
H we disagree with the appellant's that zinc dross, flux skimming and zinc
C.C.E. v. TAT A IRON AND STEEL CO. LTD. [LAKSHMANAN. J.J 727
scallings are goods and hence excisable. A
The appeals filed by the Revenue have no merits and are liable to be
dismissed and we do so accordingly .. The respondent/assessee will be entitled
for refund of the duty and penalty, if any, paid by them. No costs.
B.S. Appeals dismissed.
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