TMI Blog2023 (8) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... DALCO INDUSTRIES LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, BELAPUR, MUMBAI III NAGPUR [ 2014 (11) TMI 385 - CESTAT MUMBAI (LB)] was assailed in a Writ Petition before the Bombay High Court. The issue that had arisen before the Larger Bench of the Tribunal was whether aluminium dross and skimmings or similar non-ferrous metal dross and skimmings, which arise in the process of manufacture of aluminium/non-ferrous metal products can be considered as manufactured goods and hence, excisable for the period post 10.05.2008 in view of the Explanation added to section 2(d) of the Excise Act. The Larger Bench of the Tribunal held when dross and skimmings are specifically mentioned in the tariff, it would not be unreasonable to assume that such products are manufactured goods even though they arise in the course of manufacture of other products. Inasmuch as the goods which are capable of being bought and sold are deemed to be marketable, in view of explanation to Section 2(d), the twin tests of manufacture and marketability are clearly satisfied in the case of dross and skimmings. As per the settled position in law manufacture takes place when a new commodity with a distinct name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Reduction Shaft is refuse, but it has necessarily to undergo the requirement of scrubbing of the particulate matter and other impurities before being released in the atmosphere because of the directions issued by the Ministry of Environment and Forests and this process of removal of impurities would not amount to manufacture. According to the appellant, it was only to meet this requirement that it had to work on the top gas. Whether the scrubbing of the particulate matter and removal of impurities in the top gas would amount to manufacture of export gas? - HELD THAT:- The top gas that emerges is refuse and can be said to be similar to dross and skimmings, which are scum and are not manufactured goods. The appellant manufactures Direct Reduced Iron and the top gas emerges as a result of process of manufacture of Direct Reduced Iron. Top gas is not a new and different article with a distinctive character or use and merely because top gas may fetch a price after the removal of the impurities would not mean that it has been manufactured. It not possible to accept the distinction sought to be drawn by the learned special counsel for the department as the top gas is admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tariff Item 2811 29 40 of the Excise Tariff and the Tribunal had earlier held in JSW STEELS LTD. VERSUS COMMISSIONER OF C. EX., BELGAUM [ 2010 (2) TMI 527 - CESTAT, BANGALORE] that this would amount to marketability . This view, as discussed above, is incorrect. Even otherwise, it is a settled law that the burden is on the department to establish that a product is a manufactured product, before seeking to levy duty of excise on the same. The said burden has not been discharged, in the facts of the present case. Thus, the process undertaken on the top gas for removal of impurities to satisfy not only the conditions set out in the letter granting permission to the appellant for continuation and expansion of its manufacturing facilities but also to ensure compliance of the process design of the Technology supplier would not result in manufacture of the export gas. The Commissioner was, therefore, not justified in confirming the demand. Appeal allowed. - MR. DILIP GUPTA, PRESIDENT AND MS. R. BHAGYA DEVI, MEMBER (TECHNICAL) Shri Vipin Kumar Jain, Shri M.S. Nagaraja and Shri Vishal Agarwal, Advocates for the appellant. Shri P.R.V. Ramanan, Special Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and additives (limestone and dolomite) are continuously charged through a lock hopper system located on top of the Shaft. The same reacts with Carbon Monoxide and Hydrogen content of the reduction gas generated in the Melter Gasifier for reducing the Iron ore to Iron. The said reduction gas has a temperature of around 8500C and a pressure of over 3 bar gauge. The same is injected in the Reduction Shaft through a Bustle located 5 meters above the bottom of the Reduction Shaft. The composition of the reduction gas is broadly as follows: Carbon Monoxide 67.99 % Carbon-Dioxide 6.48 % Hydrogen 21.01 % Methane 1.62 % 5. In the Melter Gasifier, the volume of which is 2200m3, coal is fed directly into the dome through a lock hopper system and is converted to char (fixed carbon and ash) at temperatures in the range of 1000-15000C. Oxygen is blown into the Melter Gasifier where it reacts with the coal, generating reduction gas which is a mixture of, amongst others, Carbon Monoxide (67.99%) and Hydrogen (21%). The heat generated in the Melter Gasifier is utilized for melting Iron and slag and also for ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.68 % Methane 1.62 % 1.61 % 1.62 % 9. The appellant claims that the permission granted to the appellant by the Ministry of Environment and Forests in the letter dated 19.01.2001, in relation to the continuation and expansion of its manufacturing facility, is subject to certain general and specific conditions and it is because of these conditions it was imperative for the appellant to remove the impurities from the top gas, otherwise the plant would have to be shut down. The relevant stipulations mandating the removal of particulate matter and other impurities from the top gas generated during the manufacturing process are as follows:- SPECIFIC CONDITIONS: i. At no time the emission level should go beyond the prescribed standards. In the event of failure of any pollution control system adopted by the unit. the respective unit should not be restarted until the control measures are rectified to achieve the desired efficiency. ii. The off gases from Corex Plant should be cleaned in venturi scrubbers . Electrostatic precipitator (ESPs) with operation efficiency of not less than 99.80 shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h hot gas cyclone, Packing Scrubber, Venturi Scrubber, and Mist eliminator. As a result, the said gases are no longer the same gases that emanated from the respective reactors. The gases have undergone change in their composition after the processes of refining that they are subjected to, in order to meet the specific requirements of the purchaser's M/s JSWE and M/s JPOCL . This COREX Gas is supplied as per the specifications detailed in the respective schedules of the respective Agreements (Annexure C2 -C3). Thus, the processes involved in the processing of the said gases, it appears, fall within the scope of definition of manufacture in Section 2(f) of Central Excise Act ('CEA'), 1944. Further, the said processed Top gas, is mixed with processed Reduction gas, to produce Export gas. Thus, it appears to be evident that the processes, that the said gases are subjected to amount to manufacture and the said Export gas are cleared as fuel which is excisable. (emphasis supplied) 12. Similar allegations have been made in the subsequent four show cause notices. 13. The appellant filed detailed replies to each of the aforesaid show cause notices and contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot gas cyclone, packing scrubber, venture scrubber and mist eliminator so as to obtain the desired composition of the gas as per the parameters prescribed by their customers in the said Agreement. The adoption of the said processes so as to bring about the desired changes and to make the product marketable is clearly indicative of existence of manufacture which is essential factor for levy of duty. 32. *******. The assessee has claimed that the gas being supplied is an off gas and their case is covered by the Hon'ble Tribunal decision in the case of Phillip Carbon Black Ltd Vs CCE, 1999 (111) ELT 835 and other similar decisions. The contention of the assessee is not acceptable as the Corex gas after its emergence in the furnace is subjected to various processes to obtain desired Carbon Monoxide as per the sale agreement and the same is being sold to their customers against monetary consideration. ******* 38. In the instant case the Corex gas having essential character and use as that of carbon monoxide, merit classification under heading 28112940. ******* 40. My predecessor has already held vide OIO Sl. No. 02/2008 dated 05.03.2008 issued from file C. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een subjected to a process of manufacture since the gas that emerged from the furnace had been subjected to a refining process for removal of impurities so as to obtain the parameters of the gas desired by the customers; (vi) The processing of the top gas which emerges from the the Reduction Shaft for removing the impurities before being released in the atmosphere is a mandatory requirement because of the directions issued by the Ministry of Environment and Forests; (vii) The scrubbing of the top gas was not undertaken to meet the contractual specifications of Jindal and JSW, but to ensure compliance of the environmental norms in case the said gas was to be released in the atmosphere; (viii) The burden to prove that manufacture had taken place was on the department, which burden has not been discharged; and (ix) The Commissioner completely misread the statement of Dharmendra Gupta to hold that Corex Technology is designed in such a way to tap the emergent gas and to process it in the auxiliary plant so as to produce commercially viable Carbon Monoxide as a final product. 16. Shri P.R.V. Ramanan, learned special counsel for the department assisted by Shri Rajiv Kumar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and skimmings, Cinder and Bagasse: (vi) The export gas supplied to Jindal and JSW, after going through a series of processes, though with a reduced Carbon Monoxide content, still has predominant wide applications. Thus, it meets the twin requirements of manufacture and marketability , unlike Aluminium dross and skimmings, Zinc dross and skimmings, Cinder and Bagasse; and (vii) Paragraph 8 of the show cause notice refers to two articles, one co-authored by an employee of the suppliers of Corex Technology and the other by the employee of the appellant. The first article refers to export gas as a high quality product, that is used for heating, generation of power and Direct Reduced Iron production. It would, therefore, be incorrect to regard export gas as an off gas or waste gas . In the second article, it is stated that more than 40% of the total energy input in the corex process is subsequently available as valuable export gas and that the economy of the process is strongly enhanced when the export gas is put to use in the possible ways of its application. DISCUSSION 17. Learned counsel for the appellant submitted that central excise duty is levied on excisable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able price and there are regular buyers. We find that the product is not marketed as carbon monoxide is no legal hurdle to classify it under the entry for carbon monoxide if the item conforms to the description of that entry. In the instant case the impugned gas is a manufactured product and has a market. The product is known to the trade dealing in it. From the agreements entered into by JSW for sale of EG, we find that the parties dealing in the product call it corex gas. The gas has well defined parameters/ specification and fits the description in the relevant entry. We therefore find that this ground raised by the assessee has no merit. ******* 11.2 ******. The subject gas is not a non-descript mixture without particular applications but a valuable product rendered marketable by the assessee as a potent fuel. The same is known among concerned trade circles. It is not similar to kiln gas referred to in the above judgment; the ratio therefore does not apply. (emphasis supplied) 19. It is seen from the aforesaid decision that the Tribunal had only examined the issue of marketability of the export gas and it is not possible to accept the contention of the learned s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, set for in the First Schedule to the Excise Tariff Act. 24. The issue, therefore, that arises for consideration is whether mere marketability of a product is enough for levy of central excise duty in view of what is contained in the Explanation to the definition of excisable goods in section 2(d) of the Excise Act w.e.f. 10.05.2008 or is it necessary that manufacture must necessarily also take place. 25. This issue was examined by the Bombay High Court in Hindalco Industries Limited vs. Union of India [2015 (315) E.L.T. 10 (Bom.)]. The decision rendered by a Larger Bench of the Tribunal in Hindalco Industries Limited vs. C.C. E., Belapur, Mumbai-III [2014 (308)E.L.T. 472 (Tri.-LB)] was assailed in a Writ Petition before the Bombay High Court. The issue that had arisen before the Larger Bench of the Tribunal was whether aluminium dross and skimmings or similar non-ferrous metal dross and skimmings, which arise in the process of manufacture of aluminium/non-ferrous metal products can be considered as manufactured goods and hence, excisable for the period post 10.05.2008 in view of the Explanation added to section 2(d) of the Excise Act. The Larger Bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horitative pronouncements of the Hon ble Supreme Court, can the Tribunal take a different view. When the Hon ble Supreme Court holds and as in Grasim Industries Ltd. (supra) that the conditions contemplated under Section 2(d) and Section 2(f) have to be satisfied conjunctively in order to entail imposition of excise duty under Section 3 of the Act, then, we cannot agree with the Tribunal. The Larger Bench decision does not take into account the fact that the authoritative pronouncement by the Supreme Court and repeatedly rendered is binding on it. That is law declared under Articles 141 of the Constitution of India. That it is rendered in the case of identical issues, controversy and the Assessee makes these Judgments of the Supreme Court all the more binding. Their binding effect is not lost merely because the Tribunal has another occasion to consider the issue or another shade of the same controversy. So long as there are Supreme Court Judgments in the field, we do not see how the Revenue could have proceeded to disregard them. 22. That the Revenue does not wish to abide by them would not mean that the Tribunal is justified in not following them. We find that the attempt m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 2(f) of the Central Excise Act. ******** 9. The Revenue sought to cover the case under sub-clause (ii) as per which the process which is satisfied in relation to any goods in the Section or Chapter notices of the First Schedule to the Central Excise Tariff Act, 1985 would amount to manufacture . Here again, fiction is created by including those goods as amounting to manufacture in respect of which process is specified in the Section or Chapter notices of the First Schedule. 10. In the present case it could not be pointed out as to whether any process in respect of Bagasse has been specified either in the Section or in the Chapter notice. In the absence thereof this deeming provision cannot be attracted. Otherwise, it is not in dispute that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and the absence of manufacture, there cannot be any excise duty. (emphasis supplied) 29. The Supreme Court in Ahmedabad Electricity also observed as follows: 13. We are unable to accept the proposition advanced by the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidental or ancillary to the completion of a manufactured product; which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Excise Tariff Act as amounting to manufacture; or which in relation to the goods specified in the Third Schedule involves packing or repacking of such goods or re-labeling of containers or adoption of any other treatment on the goods to render the product marketable to the consumer. 33. The contention advanced by the learned counsel for the appellant is that export gas was not manufactured by the appellant and so excise duty cannot be levied. 34. It would be useful, before analyzing the process undertaken by the appellant, to examine certain decisions to find out what exactly is manufacture . 35. In Union of India vs. Delhi Cloth and General Mills Co. Ltd. [1977 E.L.T. (J 199)], the Supreme Court held that the word manufacture means bringing into existence a new substance but this would not mean that minor changes in the substance would also amount to manufacture, for every change is not manufacture. The Supreme Court emphasized that the change must result in transformation and a new and different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be the criteria since any rubbish can also be sold. The High Court held that dross and skimmings are merely scum thrown out in the process of manufacture of aluminium sheets and, therefore, it cannot be said that dross and skimmings are transformation resulting in a new and different article with a distinctive name, character or use. The Bombay High Court also observed that the aluminium ingots were utilized for the manufacture of the end product, namely aluminium sheets and certainly not for the manufacture of scum and refuse like dross and skimmings. The relevant observations of the Bombay High Court are as follows: 24. The question that one must ask oneself is whether therefore dross and skimmings are goods . lt may well be that dross and skimmings may be capable of fetching some sale price. For that matter any rubbish can be sold. But that is not the criterion. It cannot be said that dross and skimmings are the result of treatment, labour or manipulation whereby the end-product is dross and skimmings. They are merely the scum thrown out in the process of manufacture of aluminium sheets. Therefore it cannot be said that dross and skimmings are transformation resulting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (emphasis supplied) 38. The Civil Appeal filed by the department against the aforesaid decision of the Bombay High Court was dismissed by the Supreme Court and the decision is reported in 1995 (77) E.L.T. 268 (S.C.) [Union of India vs. Indian Aluminium Co. Ltd.] . The relevant portions of the judgment of the Supreme Court are reproduced below: 13. 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 . ***** ***** Dross and skimmings may contain some small percentage of metal. But dross and skimmings are not metal in the same class as waste or 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty on the aluminium ash and dross as well. 3. It is submitted by the learned counsel for the appellants that the CESTAT has committed grave error in arriving at the aforesaid conclusion. He argues that in order to make a particular product excisable to duty twin conditions are to be satisfied, viz., (1) that the product has come into existence by process which amounts to manufacture within the meaning of Section 2(f) of the Central Excise Act and (2) such product is marketable . In support of this, he has referred to the judgment of this Court in Union of India and Others v. Indian Aluminium Co. Ltd. and Another [1995 Supp (2) SCC 465 = 1995 (77) E.L.T. 268 (S.C.)]. He submits that aluminium ash and dross were by-products which came into being during the manufacture of die-casting of aluminium parts. He has also pointed out that the CESTAT itself accepted, while deciding the issue for the future period, that the aforesaid case of the appellant is covered by the judgment of this Court in Indian Aluminium Co. Ltd. s case referred to above. 4. After hearing the counsel for the parties, we are of the opinion that the CESTAT s later judgment in the appellant s case itself, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of crude gases known as Lean Gas or Off Gas which emerges in the course of manufacture of Carbon Black. Chemically, these are liquid hydro-carbons. One of the components of this Gas is Carbon monoxide which is an extraneous gas and cannot be flared up in the atmosphere, being a hazardous one . In terms of the Anti-Pollution Laws, the appellants are required to burn the Carbonmonoxide content out of this mixture of gases, before venting out the remaining constituents of the Lean Gas. While burning the Carbon monoxide gas out of the Off Gas, certain heat is generated, which is used by them for their rotaters in the manufacturing operation. This particular fact has been considered by the Commissioner as a leading factor to hold the gases in question as excisable goods, inasmuch as the same is to be used captively by the appellants as fuel for the purpose of heat generation, during the burning process . The appellants contention is that though this proposition is a casual affair for them for generation of heat, neverthless, they are compelled by the process of law to burn the Carbon monoxide before release of the rest of the gases into the atmosphere. It is only to put to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nology offered by VAI, Austria. It consists of two reactors, namely, Reduction Shaft and Melter Gasifier. A schematic diagram to demonstrate the manner in which Direct Reduced Iron is manufactured in the Corex Module has been supplied by the appellant, and it is as follows: 45. In the Melter Gasifier, coal is burnt in the presence of Oxygen at a very high temperature, so as to crack the volatile matter in the coal. The gas so generated participates in the manufacturing process in the Melter Gasifier and thereafter is injected into the Reduction Shaft after cleaning the same of the dust particles and reducing its temperature to 850 C. This gas, which has been nomenclated by the appellant as the reduction gas, inter alia has Carbon Monoxide of about 67.99%, while Hydrogen is about 22.01%. It also has Carbon Dioxide of about 6.48% and other impurities. This reduction gas participates in the reduction process in the Reduction Shaft, wherein Carbon Monoxide and Hydrogen reduce the Oxygen content in the Iron Oxide to reduce it to Iron. The gas which emerges from the Reduction Shaft has been nomenclated by the appellant as top gas, which inter alia has Carbon Monoxide of about 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only as a technological accident. The top gas emerging out of the process of manufacture of Direct Reduced Iron is, in fact, in the nature of dross and skimmings which are scum that are produced in the course of manufacture of aluminium. It would, therefore, be reasonable to apply the same principles that have been enumerated in the decisions of the Supreme Court in Hindalco Industries, Ahmedabad Electricity, Delhi Cloth and General Mills and S.B. Sugar Mills to determine whether manufacture had taken place. We need to remind ourselves, at this stage, about the observations made by the Bombay High Court and the Supreme Court in Indian Aluminium Co. Indian Aluminium Co. The Bombay High Court noted that dross and skimmings are merely the scum thrown out in the process of manufacture of aluminium sheets and, therefore, it cannot be said that transformation has taken place resulting in a new and different article with a distinctive name, character or use. The Supreme Court also observed the dross and skimmings are merely refuse given out in the course of manufacture in the process of removing impurities from the raw material. A conclusion can, therefore, safely be drawn that top gas wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 authorities concerned ***** 56. Top gas is refuse and has not been manufactured. Merely because impurities have to be removed to comply with the conditions set out in the letter granting permission to the appellant to ensure protection of environment, the refuse will not change its character and will continue to be refuse. It cannot be urged that a new product having a distinct name would emerge after removal of impurities and the product will continue to be refuse. 57. It has been urged by the learned special counsel for the department and has also been noticed by the Commissioner that the resultant gas is Carbon Monoxide. This is factually incorrect as the resultant export gas has only 47.2% Carbon Monoxide. Hydrogen is to the extent of 18.45% and Carbon Dioxide is to the extent of 30.68%. 58. The Commissioner has also referred to the statement of Dharmendra Gupta made on 22.02.2006, to hold that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to satisfy the contractual requirements of Jindal and JSW. According to the appellant, the top gas that emerged from the Reduction Shaft meets the specifications of the gas specified in the contract entered into between the appellant on the one hand and Jindal and JSW on the other, and for this purpose the appellant has placed a chart showing the agreed specifications and the composition of top gas that emerges from the Reduction Shaft. The chart is reproduced below: Sr. No. Specifications in terms of the contractual agreement with JSW Specifications in terms of contractual agreement with Jindal Top Gas Particulars Nominal % by volume Permitted Limits in % Particulars Nominal % by volume Permitted Limits in % Particulars Comp- osition in Perce- ntage 1. Carbon Monoxide 46 42-50 Carbon Monoxide 42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and a conclusion could not have been drawn that because it was marketable it would mean that manufacture had taken place. The Commissioner also heavily relied on the fact that the export gas was nothing but Carbon Monoxide , which conclusion is evidently incorrect since the export gas had only 47.02% of Carbon Monoxide. The Commissioner also proceeded to observe that manufacture had taken place since Carbon Monoxide falls under Tariff Item 2811 29 40 of the Excise Tariff and the Tribunal had earlier held in JSW Steel that this would amount to marketability . This view, as discussed above, is incorrect. 64. Even otherwise, it is a settled law that the burden is on the department to establish that a product is a manufactured product, before seeking to levy duty of excise on the same. The said burden has not been discharged, in the facts of the present case. 65. The Commissioner also failed to appreciate that the calorific value of export gas is around 1830 kCal/Nm3, which is equal to 1429 kCal/kg, as is evident from a perusal of the agreements entered into by the appellant with Jindal and JSW. Learned counsel for the appellant pointed out that the calorific value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is supplied to the national power grid and the remainder is used within the steelworks and for the operation of the oxygen plant 69. It is not only the export gas, but also Coal Fines which are used in generation of power in the power plant. In any case, the article has no bearing on the determination of the question as to whether export gas is a manufactured product. 70. Learned special counsel for the department also submitted, based on the said article, that export gas generates 40% of the power required by the appellant plant. This factual position is not borne out from the article since what has been stated in the article is that more than 40% of the total energy input in the COREX process is subsequently available as export gas. What has been stated is that out of the total energy required for manufacture of steel about 40% of the energy value is not fully utilized and is released from the Reduction Shaft as top gas. The article does not suggest that 40% of the power required for operation of the plant is through the use of export gas. CONCLUSION 71. What, therefore, follows is that the process undertaken on the top gas for removal of impurities to satisfy n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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