2025 (5) TMI 845 - AT - Central Excise

Levy of Excise Duty - fly ash coming into being in the course of manufacture of electricity by burning coal - HELD THAT - The Commissioner(Appeals) has given a detailed finding relying on the Supreme Court s decision in the case of Moti Laminates vs. Collector of Central Excise Ahmedabad 1995 (2) TMI 67 - SUPREME COURT Union of India v. Ahmedabad Electricity Co. Ltd. 2003 (10) TMI 47 - SUPREME COURT and Madras High Court s decision in the case of Mettur Thermal Power Stationv. C.B.E. C New Delhi 2015 (9) TMI 152 - MADRAS HIGH COURT where it was held that resins even if they could last for 15 days under controlled conditions were not marketable or capable of being marketed. Therefore they could not be subjected to excise duty. Thus the issue is not more res integra. In order the demand the Excise Duty manufacture of the goods in term of Section 2 (f) of the CEA 1944 is being consistently held as an essential element. In the present case the Revenue has not brought in any evidence to the effect that fly ash has been manufactured as a planned activity. It is seen that it is arising out as a by-product in the manufacture of the end product when Electricity is generated by using the coal in the furnace. Conclusion - The Revenue has not brought in any evidence to the effect that fly ash has been manufactured as a planned activity. It is seen that it is arising out as a by-product in the manufacture of the end product when Electricity is generated by using the coal in the furnace and cannot be subjected to levy of excise duty. Appeal filed by Revenue is dismissed.

Summary

The core legal question considered by the Tribunal is whether fly ash, generated during the process of electricity production by burning coal, is liable to payment of Excise Duty under the Central Excise Act, 1944.

The issue hinges on the interpretation of the term "manufacture" under the excise law and whether fly ash qualifies as a manufactured excisable good subject to duty.

The Tribunal's analysis primarily revolves around the following issues:

• Whether fly ash is a product of a manufacturing process as defined under Section 2(f) of the Central Excise Act, 1944.
• Whether fly ash satisfies the twin conditions of mobility and marketability required for excise duty levy.
• The applicability of judicial precedents concerning excisability of by-products such as cinder and fly ash.
• The evidentiary burden on the Revenue to establish that fly ash is a manufactured good liable for excise duty.

Regarding the first issue, the Tribunal extensively relied on the Supreme Court's decision in the case of Moti Laminates Pvt. Ltd. vs. Collector of Central Excise, Ahmedabad, which clarified that excise duty is leviable only on goods that are "produced or manufactured" and that the goods must satisfy the test of marketability. The Court emphasized that the term "goods" in Entry 84 of List I of the VII Schedule must be understood in the context of goods produced or manufactured by the assessee, and that mere existence of goods in the Schedule does not automatically attract excise duty unless they are manufactured and marketable.

Next, the Tribunal examined the Supreme Court's ruling in Union of India v. Ahmedabad Electricity Co. Ltd., which dealt with the excisability of cinder produced by burning coal. The Court held that burning coal to produce steam does not constitute a manufacturing process and that cinder, being an unburnt part of coal, does not acquire a new identity or undergo transformation to qualify as a manufactured product. The Court rejected the Revenue's attempt to classify cinder as coal ash for excise purposes, noting the absence of any interpretative note or tariff entry specifically covering cinder or coal ash, and reiterated that coal ash is not subject to excise duty.

The Tribunal also referred to the Madras High Court's decision in Mettur Thermal Power Station v. C.B.E. & C., which directly addressed the excisability of fly ash and fly ash bricks. The Court held that fly ash, being a residue generated during coal combustion, does not undergo any manufacturing process and thus is not liable to excise duty. The Court explained the difference between cinder and fly ash, noting that fly ash results from complete combustion and is a residue rather than a manufactured good. It further reiterated that for excise duty to be leviable, the goods must be movable and marketable, and merely being listed in the Schedule does not suffice.

Applying these principles to the facts, the Tribunal noted that fly ash arises incidentally as a by-product in the process of generating electricity by burning coal. The Revenue failed to produce any evidence that fly ash was manufactured as a planned or deliberate product. Instead, it is a residual material resulting from combustion, lacking any transformation that would confer a new identity or marketability as a manufactured good.

The Tribunal also considered the Revenue's competing arguments but found them unpersuasive given the consistent judicial precedent that by-products like cinder and fly ash do not constitute manufactured goods within the meaning of excise law. The absence of any tariff entry or interpretative note specifically taxing fly ash further weakened the Revenue's position.

Consequently, the Tribunal concluded that fly ash does not satisfy the essential condition of manufacture required for excise duty levy under the Central Excise Act. Since there is no duty liability on fly ash, there can be no question of interest or penalty imposed on the assessee.

The Tribunal upheld the detailed findings of the Commissioner (Appeals) and dismissed the Revenue's appeal.

Significant holdings from the judgment include the following verbatim excerpts that encapsulate the core legal reasoning:

"The expression 'produced or manufactured' has further been explained by this Court to mean that the goods so produced must satisfy the test of marketability. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed."

"Burning of coal for purposes of producing steam cannot be said to be a manufacturing activity. Therefore, neither ash nor cinder can be said to be products of a manufacturing process. From burning coal when you get either cinder or ash, it cannot be said that a new product had emerged."

"The 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."

"In order to demand the Excise Duty, manufacture of the goods in term of Section 2 (f) of the CEA 1944, is being consistently held as an essential element."

Core principles established by the Tribunal are:

• Excise duty is leviable only on goods that are manufactured or produced, satisfying the test of marketability.
• By-products or residues arising incidentally from a manufacturing process, such as fly ash or cinder, which do not undergo transformation to acquire a new identity, are not excisable goods.
• The burden lies on the Revenue to prove that the goods were manufactured as a planned activity and are marketable.
• Absence of specific tariff entries or interpretative notes taxing such by-products reinforces their non-excisability.

Final determinations are that fly ash generated from coal combustion in electricity generation is not a manufactured excisable good and hence not liable to excise duty, interest, or penalty under the Central Excise Act, 1944.