2015 (9) TMI 152 - HC - Central Excise

Levy of duty on fly ash and fly ash bricks - whether the fly ash and fly ash bricks included as items in the entries to the First Schedule to the Central Excise Tariff Act per se make the same exigible to excise duty - Held that - It has already been held by this Court that the fly ash has not gone under the process of manufacture and it cannot be said to be a manufactured product. However as regard the applicability of exemption Notification No.85/95-CE to the product fly ash on the ground that it is a waste arising in the course of manufacture of electricity which is exempted good no excise duty can be levied is concerned it is to be noted that it could be applied only if the waste parings and scrap arise in course of manufacture of excisable goods which are exempted goods i.e. goods chargeable to nil rate of duty or the same are fully exempt from duty under an exemption notification. Electricity has been specified in the First Schedule of the Central Excise Tariff under heading 27160000 but it is not subjected to a duty of excise since under the rate column the duty of excise is indicated as nil . Merely rate of duty is mentioned nil it cannot be construed that it is non-excisable good. In CCE Hyderabad versus Vazir Sultan Tocacco Co.Ltd. reported in 1996 (2) TMI 138 - SUPREME COURT OF INDIA the Hon ble Supreme Court has held that though by virtue of an exemption notification the rate of duty was nil this does not mean that they were not excisable goods. They were excisable goods. Nil rate of duty is also a rate of duty. Therefore electricity is excisable good and can be construed as exempted goods by virtue of the above notification No.89/95-CE dated 18.05.1995 as it has been clearly clarified in the Explanation that ....for the purpose of this notification the expression exempted goods means excisable goods which are chargeable to Nil rate of duty. Therefore as rightly contended by the learned counsel for the petitioner the exemption Notification No.89/95-CE would squarely applicable to the product fly ash which is a waste arise during the course of manufacture of electricity which is an excisable good chargeable to nil rate of duty. Commodity fly ash cannot be subjected to levy of excise duty because it is not an item of goods which has been subjected to process of manufacture it may not be necessary for this Court to delve upon any other related issues. Accordingly the issue is answered holding that the good fly ash does not involve any manufacturing activity and it does not fall under the purview of excisable good so as to attract levy of excise duty. - since fly ash does not itself get shaped as bricks unless some manufacturing activity is involved. Since the raw material fly ash undergoes a change since an operation performed on it resulting into fly ash brick such operation would certainly amount to processing of the commodity and such commodity is recognized as a new and distinct article i.e. fly ash brick and therefore it can be said that the good fly ash brick does involve manufacturing activity which is admittedly has marketability also being sold on a considerable price. Therefore the good fly ash brick having satisfied the test of being manufactured in India and also marketability I am of the view that it is leviable to excise duty. - Decided partly in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether 'fly ash' and 'fly ash bricks', being included in the entries to the First Schedule of the Central Excise Tariff Act, 1985, are per se exigible to excise duty under the Central Excise Act, 1944?

(b) Whether 'fly ash', produced as a by-product during the combustion of coal for electricity generation, involves any manufacturing activity so as to attract excise duty?

(c) Whether the exemption Notification No.89/95-CE dated 18.05.1995, granting exemption on waste, parings, and scrap arising during manufacture of exempted goods, applies to 'fly ash' arising in the manufacture of electricity?

(d) Whether 'fly ash bricks', manufactured from 'fly ash', constitute manufactured goods liable to excise duty?

(e) Whether the petitioner's non-payment of excise duty on 'fly ash' and 'fly ash bricks', failure to take Central Excise registration, and non-filing of statutory returns justify the issuance of the impugned show cause notice demanding duty, interest, and penalty?

2. ISSUE-WISE DETAILED ANALYSIS

(a) Excisability of 'Fly Ash' and 'Fly Ash Bricks' under the Central Excise Act

The Court examined Section 3 of the Central Excise Act, 1944, which mandates levy of excise duty on all excisable goods produced or manufactured in India as specified in the First Schedule. The definitions of "excisable goods" and "manufacture" under Sections 2(d) and 2(f) respectively were analyzed. The Court emphasized that excise duty is an incidence of manufacture and thus, for goods to be liable, they must be produced or manufactured in India through a process of transformation involving skillful manipulation.

The Court noted that mere inclusion of goods in the First Schedule does not automatically attract excise duty unless the goods satisfy the test of manufacture and marketability.

(b) Whether 'Fly Ash' involves manufacturing activity

The Court considered the nature of 'fly ash' as a fine powder residue generated during the combustion of pulverized coal in electricity production. It distinguished 'fly ash' from 'cinder' (unburnt coal residue) and relied heavily on the Apex Court decision in Union of India v. Ahmedabad Electricity Company Ltd., where it was held that 'cinder' is not exigible to excise duty as it does not undergo manufacturing process.

Applying the same reasoning, the Court held that 'fly ash' also does not undergo any manufacturing process; it is a by-product or residue rather than a manufactured product. The Court further clarified that although the definition of "goods" was amended in 2008 to deem any article capable of being bought and sold as marketable goods, marketability alone does not suffice to attract excise duty without the manufacturing process.

(c) Applicability of exemption Notification No.89/95-CE to 'Fly Ash'

The petitioner contended that 'fly ash' is a waste or scrap arising during manufacture of electricity, which is an exempted good, and thus exempt under Notification No.89/95-CE dated 18.05.1995. The respondents argued that electricity is not an exempted good but a non-excisable good with nil rate of duty, and hence the exemption does not apply.

The Court analyzed the Notification, which exempts waste, parings, and scrap arising in the manufacture of exempted goods (goods chargeable to nil rate or fully exempted). It observed that electricity is specified under tariff heading 27160000 with a nil rate of duty, and as held by the Apex Court, nil rate is still a rate of duty making electricity an excisable good.

Therefore, the Court held that the exemption notification applies to waste arising in the manufacture of electricity, and since 'fly ash' is such waste, it is exempt from excise duty under this notification.

(d) Excisability of 'Fly Ash Bricks'

The Court distinguished 'fly ash bricks' from 'fly ash' itself. It noted that 'fly ash bricks' are manufactured products formed by processing 'fly ash' into bricks, involving operations that transform the raw material into a new, distinct, marketable article.

Since 'fly ash bricks' satisfy the test of manufacture and marketability, the Court held that they are liable to excise duty as excisable goods under the Act.

(e) Legitimacy of the impugned show cause notice demanding excise duty, interest, and penalty

The respondents argued that the petitioner cleared 'fly ash' and 'fly ash bricks' without payment of excise duty, without Central Excise registration, and without filing statutory returns, justifying the issuance of the show cause notice demanding duty, interest, and penalty, including invoking extended limitation period due to alleged intent to evade duty.

The Court, having held that 'fly ash' is not liable to excise duty, set aside the show cause notice to the extent it demanded duty and penalties on 'fly ash'. However, since 'fly ash bricks' are liable to excise duty, the show cause notice remains valid in respect of 'fly ash bricks'.

3. SIGNIFICANT HOLDINGS

"To be subjected to levy of excise duty, 'excisable goods' must be produced or manufactured in India. For being produced and manufactured in India, the raw material should have gone through the process of transformation into a new product by skillful manipulation. Excise duty is an incidence of manufacture and, therefore, it is essential that the product sought to be subjected to excise duty should have gone through the process of manufacture."

"The product 'fly ash' also cannot be said to have gone through any manufacturing process and therefore cannot be subjected to levy of excise duty."

"Electricity, though charged to nil rate of duty, is an excisable good. Therefore, waste arising in the course of manufacture of electricity, such as 'fly ash', is exempted from excise duty under Notification No.89/95-CE dated 18.05.1995."

"'Fly ash bricks' are manufactured goods involving processing of 'fly ash' into bricks, thereby satisfying the test of manufacture and marketability, and are liable to excise duty."

"The impugned show cause notice is set aside insofar as it relates to excise duty, interest and penalty on 'fly ash' but stands valid in respect of 'fly ash bricks'. Accordingly, the writ petition is partly allowed."