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M/s. Mettur Thermal Power Station, A Unit of Tamil Nadu Generation And Distribution Corporation Ltd (Tangedco) Versus Central Board of Excise And Customs, Commissioner of Central Excise

2015 (9) TMI 152 - MADRAS HIGH COURT

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 gro .....

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f 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 .....

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er, 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, h .....

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d 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. - W. P. No. 17282 of 2014, M. P. Nos. 1 & 2 of 2014 - Dated:- 15-7-2015 - .....

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w and barred by limitation. 2. The petitioner is one of the various Thermal Stations of TANGEDCO. TANGEDCO is a Public Sector Undertaking owned by the Government of Tamilnadu, engaged in the generation and distribution of electricity and manufacturer of 'Fly Ash' and 'Fly Ash Bricks' falling under Chapter sub heading 26219000 and 68159910 respectively, of the Central Excise Tariff Act, (CETA) 1985. The petitioner is aggrieved by the impugned show cause notice dated 21.03.2014, in .....

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ary Higher Education cess has been demanded under erstwhile Section 11A(1) / Section 11A(5) of Central Excise of the Act 1944 (in short, the Act) for the clearance of 'Fly Ash' and further CENVAT duty of ₹ 1,85,443/-, including Education and Secondary Higher Education cess has been demanded for clearance of 'Fly Ash Bricks'. Apart from this, the respondent has also demanded interest and also proposed to impose penalty under the Rules. Challenging the same, the petitioner ha .....

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he gases of burning coal during the production of electricity. It is used as input in the manufacture of various commodities such as cement, asbestos sheet, bricks etc. The end-users themselves create infrastructure for collection of 'Fly Ash' and take delivery of 'Fly Ash' from the 'Fly Ash' extractions system placed/ installed by them at the factory premises of the petitioner. The 'Fly Ash' collection system installed at the premises of the petitioner is subject .....

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ch is shown as revenue realized as per their worksheet. It is stated that 'Fly Ash' falls under chapter sub heading 26219000 of the Act, is a marketable and excisable commodity and remained exempted from payment of duty till 28.02.2011 vide notification No.76/86 CE dated 10.02.1986, which was superseded by another notification No.17/2011 CE dated 01.03.2011. Later, duty at the rate of 1% was imposed on 'Fly Ash' vide notification No.01/2011-CE dated 01.03.2011 subject to the cond .....

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.03.2012 and 2% from 17.03.2012 onwards, on the value of 'Fly Ash' cleared. The product, 'Fly Ash Bricks', is excisable goods classified under chapter 68159910 of the Act and effective rate of excise duty was applicable on such goods cleared. It attracts duty at 8% from February 2009 to 2010, 10% from March 2010 to 16th March 2012 and 12% from 17th March 2012. Since 'Fly Ash' finds a place in the Central Excise Tariff, the petitioner is liable to pay Central Excise duty o .....

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uty on the 'Fly Ash' in lieu of the levy of duty on the clearance of 'Fly Ash' with effect from 01.03.2011 with an intent to evade payment of duty which was detected during the investigation carried out by the department. The extended period of limitation is applicable. The petitioner being a public sector undertaking, it is mandatory on their part to discharge government liability in the form of excise duties and taxes which, it has failed to do so. Since there is an intention t .....

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ned on the petitioner to adhere to law and comply with the statutory obligations. With these averments, the respondents sought for dismissal of the Writ Petition. 5. Heard the learned counsel for the petitioner and the respondents and perused records. 6. The issue before this Court is, 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? 7. According to the .....

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nd excisable commodity. It is stated that though it remained exempted from payment of duty till 28.02.2011 vide Notification No.76/86 CE dated 10.2.1986, however, later, the said exemption notification was superseded by Notification No.17/2011 CE dated 01.03.2011 and duty at the rate of 1% was imposed on 'fly ash' vide notification No.01/2011-CE dated 1.3.2011, subject to condition that cenvat credit is not availed by the manufacturer of fly ash. Thereafter, the rate of duty has been inc .....

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roposing to raise demand towards CENVAT duty along with interest and penalty, inasmuch as, the petitioner have cleared 'fly ash' and 'fly ash bricks' without payment of appropriate excise duty, without taking central excise registration and without filing statutory monthly returns. 8. This issue needs a reference to the relevant statutory provisions. Section 3 of the Act insists imposition of duties specified in first schedule, reads as under: "3. Duties specified in the Fir .....

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cisable goods" means goods specified in the First Schedule as being subject to a duty of excise and includes salt; *Explanation - For the purpose of this clause, "goods" includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable." (*Explanation has been inserted by Act 18 of 2008, Sec.78 (wef.10.5.2008) "2(f) "manufacture" includes any process incidental or ancillary .....

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ration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer; and the word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account." 9. From the above, it is clear that to be subjected to levy of excise duty &qu .....

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y ash bricks" are included in the items in the entries to the First Schedule to the Act and thereby, they are subjected to levy of excise duty in view of Section 3 of the Act. It is to be noted that simply because goods find mention in one of the entries of the First Schedule, does not mean that they become liable for payment of excise duty. It is essential that the goods have to satisfy the test of being produced or manufactured in India. Excise duty is a duty leviable only on the manufact .....

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equipment before the flue gases reach the chimneys of coal-fired power plants, and together with bottom ash removed from the bottom of the furnace is in this case jointly known as coal ash. Depending upon the source and makeup of the coal being burned, the components of fly ash vary considerably, but all fly ash includes substantial amounts of silicon dioxide (SiO2) (both amorphous and crystalline) and calcium oxide (CaO), both being endemic ingredients in many coal-bearing rock strata. "F .....

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than traditional clay brick manufacturing." 12. First, let us first examine whether the good "fly ash" does involve any manufacturing activity, falls under the purview of excisable good so as to attract levy of excise duty? 13. In this regard, it is worthwhile to refer the decision of the Apex Court in "Union of India versus Ahmedabad Electricity Company Limited" reported in (2002) 11 SCC 129 wherein, while upholding the view of the High Court of Gujarat, the Apex Court .....

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ove discussion it is clear that 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 skilful 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. Cinder cannot be .....

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'fly ash' is that when coal is not burnt fully and leaves pieces behind, is called 'cinder' whereas, when it is fully burnt and reduced to ash, is called 'fly ash'. Therefore, I am of the considered view that the ratio decided in the above said decision would squarely apply in the case of 'fly ash' also since the product 'fly ash' also cannot be said to have gone through any manufacturing process. In fact, to attract excise duty under Section 3 of the Cent .....

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the cinder cannot be subjected to levy of excise duty since it did not satisfy the test of being manufactured, however, as regards marketability of the said product, it has observed as under in para 36, which reads as follows. "36. In view of our finding that cinder 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 is not necessary for us to go into any other point. We may only note that courts have evolved .....

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duty is hereby rejected." 15. Therefore, regarding the marketability of the product, 'cinder', even if it is saleable, the Hon'ble Supreme Court has held the same cannot be subjected to levy of excise duty since it does not satisfy the test of being manufactured. By the time, the above said judgment was rendered by the Apex Court, in order to levy excise duty on the excisable goods as defined under Section 2(d) of the Act, the primary requirements were, that the goods should be .....

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sold for a consideration and such goods shall be deemed to be marketable." 16. By virtue of the above amended section, now the term "goods" is meant, any article, material or substance being bought and sold for a consideration and such goods shall be deemed to be marketable. 17. While so, de-horsing the marketability of the product, the learned counsel appearing for the petitioner would vehemently contend that the product fly ash would not attract levy of excise duty since it was .....

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s a waste or scrap arising in the course of manufacture of 'electricity' which is exempted good, by virtue of the above said Notification, no excise duty can be levied on the fly ash. 18. On the other hand, the learned counsel appearing for the respondent would contend that benefit of exemption granted by Notification No.89/95 CE, dated 18.5.1995 would be extended only on waste, parings and scrap arising during the manufacture of exempted products and electricity is not an exempted produ .....

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urse of burning of pulverized coal for the manufacture of electricity as a by product, which has marketability and hence, it cannot be treated as waste or scrap unless it has no value or negligible value and admittedly, the fly ash is being sold to various companies on a fixed price. 19. There are several judicial pronouncements on the issue, excisebility on by-product and waste product rendered by various High Courts and the Apex Court. The scrap means a waste and a scrap from the manufacture o .....

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erent items. But in the case of a by-product it has its own market value and can be used for production of different items. Though many decisions are available on the subject 'waste vis-a-vis by-product', I feel it appropriate to refer to the decisions of the CESTAT, Principal Bench, New Delhi in the case of "Commissioner of Central Excise, Jalandhar versus A.G.Flats Limited", wherein, the Hon'ble Tribunal, having dealt with the issue in a perspective manner, has held as un .....

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m 'waste.' Oxford Advanced Learner's Dictionary defines the term "by-product" as a substance produced during the process of making or destroying something else. Thus, if in course of manufacture of product A, a product B, also emerges in addition to the intended product A, even though there was no intention to manufacture the product B, the product B would be called a by-product. The waste is a by-product which is of no value or very low value. Larger Bench of the Tribunal .....

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) has held that soap stock arising in course of refining of oil is waste, no reasons have been given for arriving at this conclusion. In this order, the observations of the Tribunal that the decision of Hon'ble Supreme Court in the case of Khandelwal Metal & Engineering Works v. Union of India reported in 1985 (20) E.L.T. 222 (S.C.) would cover the issue in favour of the respondent are also not correct as the issue involved in the case of Khandelwal Metal & Engineering Works was as t .....

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he Government against this order of the Tribunal has been dismissed by Hon'ble Supreme Court, the dismissal being a summary dismissal without giving any reasons does not lay down any law as, as held by Hon'ble Supreme Court in a series of judgment in the cases of Goodyear India Ltd. v. State of Haryana reported in 1990 AIR SC 781 and A-One Granite v. State of U.P. reported in 2001 AIR SC 848 summary dismissal of an appeal or a SLP without giving any reasons i.e. a sub silentio decision, .....

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of no value or negligible value, which have to be got rid of." 20. Though this Court is in full agreement with the above view of the Hon'ble Tribunal, however, the same yardstick cannot be applied to the case on hand since this Court has categorically come to the conclusion that the product 'fly ash' cannot be said to have gone through any manufacturing process. But in the above referred to case, the Hon'ble Tribunal has held that when a product emerges as a by-product in co .....

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waxes and gums obtained in course of refining is covered by heading 1522. As regards soap stock, the same would also be covered by Heading 1522, as, as per HSN Explanatory Notes of heading 1522, this heading among other things, covers soap stocks which are the by-product of oil refining, produced by neutralisation of free fatty acids with a base (sodium hydroxide) and consist of mixture of crude soap, natural oils or fats. As regards, fatty acids obtained in course of refining, the same by virtu .....

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at 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 exc .....

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that it is necessary in the public interest to do so, hereby exempts waste, parings and scrap arising in the course of manufacture of exempted goods and falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the said Schedule : Provided that nothing contained in this notification shall apply to waste, parings and scrap cleared from a factory in which any other excisable goods other than exempted .....

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tral Excise Rules, 1944 or sub-section (1) of section 5A of the said Act." 22. A reading of the above notification, it is clear that the following conditions must be satisfied for exemption under this notification:- (i) the goods must be waste, parings and scrap; (ii) the goods must be falling within the schedule to the Central Excise Tariff Act; (iii) the waste, parings and scrap must have arise in course of manufacture of excisable goods which are exempted goods i.e. goods chargeable to n .....

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electricity and electricity is not an exempted product, but a non-excisable good, found place in the First Schedule to the Central Excise Tariff Act, 1985 and though the rate of duty is left blank in the relevant column, it denotes that electricity is classed as tariff item and hence, it cannot be construed that the electricity is an exempted good. 24. It is not in dispute that 'electricity' has been specified in the First Schedule of the Central Excise Tariff under heading 27160000, bu .....

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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 petit .....

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