Union of India Vs. Ahmedabad Electricity Co. Ltd. & Ors  Insc
534 (29 October 2003)
Pal & Arun Kumar
WITH CIVIL APPEALS NOS. 7792-7795/2001, 626-627/2002, 2013/2002, 3194/2002,
4183-4188/2002, 4724/2002, 8642- 8644/2002, 8649/2002, 87-89/2003, 4051/2003,
4490-4493/2003 ARUN KUMAR, J.
question which arises for consideration in this bunch of appeals is regarding exigibility
of 'cinder' to excise duty.
respondents in all the 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. 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 portion of coal is
left out in the boilers. It is called 'cinder'.
the respondents are engaged in manufacturing different end products, one thing
is common between them and that is that they all use coal as a fuel.
First Schedule to the Central Excise Tariff Act contains various entries which
is a list of excisable goods. The list also gives rates of duty leviable on the
respective items. 'Cinder' is not mentioned in any of the entries to the First
26 of the Schedule contains an entry at Serial No. 26.21 which is as under:
slag and ash, including seaweed ash (kelp)---8%" The Revenue seeks to
cover 'cinder' under the said entry to make it subject to levy of excise duty.
The respondents have resisted this claim of the Revenue. This has led to the
present litigation. The learned Additional Solicitor General appearing for the
Union of India, i.e. the Central Excise Department, raised following points in
support of the stand of the Department that "cinder" is liable to be
subjected to levy of excise duty:
view of the Entry No. 26.21 in the Central Excise Tariff Act, 'cinder' is per
se exigible to excise duty as it is covered under an entry in the First
Schedule to the Tariff Act. According to him, the fact that an item finds
mention in the Schedule to the Tariff Act per se becomes excisable. The said
Schedule contains a list of excisable goods and all items in the Schedule are
liable to payment of excise duty.
Section 3 of the Central Excise and Salt Act is the charging Section from which
the twin test of excisable goods being manufactured in India and capable of being marketable
emerge. According to the learned ASG both the tests are satisfied in the
present case. It is argued that 'cinder' is a by-product of coal which emerges
in the course of manufacture of the end product. 'Cinder' is sold by the
various assessees from their factories. Therefore, it is marketable. Thus both
the tests are satisfied.
The question involved in the present appeals is more a question of fact which
the High Court should not have entertained in a petition under Article 226 of
the Constitution of India.
from the above points urged on behalf of the Revenue, some points emerge from
the contentions raised by the learned counsel appearing for the assessees. They
statutory appeals filed by the Revenue against the judgment of the Customs
Excise & Gold (Control) Appellate Tribunal in the case of Tata Iron and
Steel Company (C.A.No.4051/2003), it has been argued that the show cause notice
issued by the departmental authorities was beyond time. Section 11A of the
Central Excise Act which allows an extended period of limitation for issue of
Show Cause Notice could not be invoked in the facts of the case because all
necessary facts were being disclosed regularly by the Company to the Revenue
authorities and there was no concealment or suppression or misrepresentation.
Therefore, the show cause notice being highly belated was liable to be quashed.
point raised in the Tata Iron Company's case is that 'cinder' is a waste
emerging from coal and the Company was spending much more on its removal from
the site as compared to what it was getting from its sale. This point has been
raised in some other cases also. This is a point which would arise on the facts
of particular cases. Proper pleadings have to be there.
Tribunal being the fact finding body ought to have adverted to it.
Unfortunately, this aspect has not received any attention before the Tribunal.
is obtained as a result of burning coal in the boilers and furnaces in
factories. When coal is fully burnt it is reduced to ash.
it is not fully burnt, it leaves pieces behind. Such pieces of unburnt or
partly burnt coal are called cinder. Cinder loses its capacity to produce
flame. That is why it is of no use in the boiler and is left out. Since it is
left with some combustible value, it is described as inferior quality coal.
– Hill Dictionary of Scientific and Technical terms describes cinders as :
residue from a burning process; in particular, small pieces of clinker from the
burning of soft coal." According to the New Webster's Dictionary of the
English Language one of the meanings of cinder is "a burned-out- or
partially burned piece of coal, wood or other substance." An important
distinguishing factor is that coal is used in factories as fuel and not as raw
material for purposes of manufacturing the end product. The learned ASG
appearing for the Union of India submitted that cinder is a by-product of coal.
Even if cinder is a by-product of coal, it is not a by-product of the raw
material used in a factory for manufacturing the end product. It is a
by-product of an item of fuel.
I Whether inclusion of an item in the entries to the First Schedule to the
Tariff Act per se makes the item exigible to excise duty? This point needs a
reference to relevant statutory provisions.
portion of Section 3 of the Central Excise Act, 1944 is reproduced as under :
3 : Duties specified in the First Schedule to be levied (1) There shall be
levied and collected in such manner as may be prescribed, duties of excise on
all excisable goods other than salt which are produced or manufactured in India
and a duty on salt manufactured in, or imported by land into, any part of India
as, and at the rates, set forth in the First Schedule." The following key
words occurring in this provision have been defined in the Act as under :
Section 2 (a)………..
(d) "excisable goods" means goods specified in the First Schedule as
being subject to a duty of excise and includes salt;
"manufacture" includes any process incidental or ancillary to the
completion of a manufactured product;……..
learned Additional Solicitor General appearing for the Union argued that Section 3 of the Act is the charging
Section. It provides that excise duty is to be levied on all excisable goods.
goods are listed in the First Schedule to the Tariff Act.
to him, Section 3 read with Section 2(d) makes it clear that an item which is
listed in the First Schedule to the Tariff Act is exigible to excise duty. It
is further submitted that in view of entry No. 26.21 in the First Schedule
'cinder' is liable to levy of excise duty.
to him, cinder is nothing but ash. From this argument, it follows that cinder
is being equated to ash in order to bring it within Entry No. 26.21 to the
First Schedule. As seen earlier, cinder is not ash - it is something between
coal and coal ash.
the sake of deciding this issue, we will assume that cinder is ash and,
therefore, is liable to be covered under entry 26.21. The real question to be
considered is whether all items listed in the First Schedule to the Tariff Act,
per se become subject to levy of excise duty. According to the learned counsel
for the Revenue, all excisable goods listed in the first Schedule are subject
to the liability to pay excise duty in view of Section 3 of the Act. Excisable
goods as per Section 2(d) are those which are specified in the First Schedule
to the Tariff Act. 'Ash' being found mentioned in Entry 26.21 in the First
Schedule, it per se becomes liable to payment of excise duty. In support of his
argument, the learned counsel relied on M/s. Khandelwal Metal and Engineering
Works and Another vs. Union of India and others [(1985) 3 SCC 620]. This was a
case of levy of additional customs duty under Section 3(1) of the Customs
Tariff Act, 1975. This duty is leviable in addition to the customs duty under
Section 12 of the Customs Act. The additional customs duty is leviable on items
imported into India if like articles if produced or
manufactured in India are liable to payment of excise
duty. The argument on behalf of the assessee was that brass scrap imported by
it was not subject to levy of the additional customs duty which is in the
nature of counter veiling duty. It cannot be levied on brass scrap because such
scrap is not manufactured in India. This
contention of the assessee was rejected on the ground that brass scrap was
being produced in India. The argument on behalf of Revenue
was that waste and scrap is mentioned in Entry 26A of the First Schedule to the
Tariff Act and is therefore exigible to excise duty. Since reliance was placed
on the argument that waste and scrap being found in relevant entry in the First
Schedule to the Tariff Act and therefore were exigible to customs duty, this
authority was pressed into service in support of the argument that presence of
an item in an Entry to the First Schedule to the Act makes it per se subject to
levy of excise duty. In our view, this authority is of no help to the
appellants. This was basically a case of levy of additional customs duty, for
which different considerations apply.
also relied on the following observations contained in Associated Cement
Company Ltd. vs. Commissioner of Customs [(2001) 4 SCC 593] :
81. Under the Central Excise Act, 1944 in the definition of the words
'excisable goods' under Section 2 (d), the very specification or inclusion of
goods in the First and Second Schedules of the Central Excise Tariff Act would
make them excisable goods subject to duty." These observations were made
in the context of provisions of the Customs Act, 1962. The charging Section in
that Act is Section 12 which refers to 'dutiable goods'. The expression
'dutiable goods' has been defined in Section 2 (14) of the Act as goods which
are chargeable to duty and on which duty has not been paid. In the present case
however, we are considering the expression 'excisable goods' in the light of
provisions contained in Section 3 of the Central Excise Act, 1944. Section 3
qualifies to expression 'excisable goods' by laying down the further
requirement that such goods should be produced or manufactured in India. Such a requirement is not there in
the Customs Act. Therefore, the above observations have no bearing on the issue
involved in the present case.
unable to accept the proposition advanced by the learned 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 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 subjected to payment 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 duty. [See Hyderabad Industries Ltd.
and another vs. Union of India and others (1995) 5 SCC 338 and Moti Laminates
Pvt. Ltd. and others vs. 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 manufactured
in India. The argument to the contrary is
2 Does the item in question satisfy the tests of being "manufactured in India" and "marketability"
? While discussing the earlier issue, we have already emphasised the
requirement of goods being manufactured in India being satisfied before excise
duty can be levied on goods. This requirement is a sine qua non for levy of
excise duty. Excise duty in fact is an incidence of manufacture.
is the meaning of 'manufacture' in the context of excise law ? We have already
quoted the definition of the word "manufacture" as contained in
Section 2(f) of the Act. According to this definition, manufacture includes any
process incidental or ancillary to the completion of a manufactured product.
The word 'manufacture' used as a verb is generally understood to mean as
bringing into existence a new substance. It does not mean merely to produce
some change in a substance. To quote from a passage in the Permanent Edition of
Words and Phrases Vol.XXVI "manufacture implies a change, but every change
is not manufacture and yet every change of an article is the result of
treatment, labour and manipulation. But something more is necessary and there
must be transformation: a new and different article must emerge having a
distinctive name, character or use". 'Manufacture' may involve various
processes. The aim of any manufacturing activity is to achieve an end product.
Depending on the nature of manufacturing activity involved, processes may be
several or one. The natural meaning of the word 'process' is a mode of
treatment of some material in order to produce a good result. Every process
which is incidental or ancillary to the completion of manufactured product is
included within the meaning of manufacture. The word 'process' has not been
defined in the Act. In its ordinary meaning 'process' is a mode of treatment of
certain material in order to give a desired shape to the material. It is an
activity performed on a given material in order to transform it into something.
word "manufacture" has been defined in various judgments of this
court. In South Bihar Sugar Mills vs. Union of India [ AIR 1968 SC 922 ], this
Act charges duty on manufacture of goods. The word "manufacture implies a
change every change in the raw material is not manufacture.
must be such a transformation that a new and different article must emerge
having a distinctive name, character or use." In M/s. Hindustan, Polymers vs. Collector of Central
Excise [(1989) 4 SCC 323] this court observed :
Duty is a duty on the act of manufacture. Manufacture under the excise law, is
the process or activity which brings into being articles which are known in the
market as goods and to be goods these must be different, identifiable and
distinct articles known to the market as such. It is then and then only that
manufacture takes place attracting duty. In order to be goods, it was essential
that as a result of the activity, goods must come into existence. For articles
to be goods, these must be known in the market as such and these must be
capable of being sold or are being sold in the market as such. In order,
therefore, to be manufacture, there must be activity which brings
transformation to the article in such a manner that different and distinct
article comes into being which is known as such in the market." According
to M/s. Ujagar Prints and others (II) vs. UOI and others [(1989) 3 SCC 488] the
test to ascertain that there is manufacture is whether the change or the series
of changes brought about by the application of processes take the commodity to
the point where, commercially it can no longer be regarded as the original
commodity but is, instead, recognised as a distinct and new article that has emerged
as a result of the processes." In Collector of Central Excise, Bombay-II
vs. M/s. Kiran Spinning Mills [(1988) 2 SCC 348], the assessee used to cut
running length fibre into short length fibre. In this process it brought a
change in the substance but did not bring into existence a new substance. The
character and use of the substance remained the same. It was held that no
manufacturing activity was involved and therefore there was no further
liability to excise duty. It was emphasized that the taxable event under the
Excise Law is "manufacture". Since there was no manufacture in this
case there was no liability to pay excise duty.
same lines there is a recent decision of this court in Collector of Central
Excise vs. TechnoWeld Industries [2003 (155) ELT 209]. The process in this case
was drawing wires from wire rods that is from bigger guage wire rods smaller guage
wire rods were drawn. The goods continued to be described as wire rods. It was
held that no manufacture as such was involved and therefore there was no
liability to pay excise duty. It was reiterated that a product becomes
excisable only if there is manufacture.
Collector of Central Excise, Jaipur vs. Rajasthan State Chemical Works, Deedwana,
Rajasthan and others [(1991) 4 SCC 473], this court adverted to the meaning of
process as well as manufacture. The following passages occurring in the
judgment are useful for present purpose:
Manufacture implies a change but every change is not manufacture, yet every
change of an article is the result of treatment, labour and manipulation.
Naturally, manufacture is the end result of one or more processes through which
the original commodities are made to pass. The nature and extent of processing
may vary from one class to another. There may be several stages of processing,
a different kind of processing at each stage. With each process suffered the
original commodity experiences a change. Whenever a commodity undergoes a
change as a result of some operation performed on it or in regard to it, such
operation would amount of processing of the commodity. But it is only when the
change or a series of changes takes the commodity to the point where
commercially it can no longer be regarded as the original commodity but instead
is recognised as a new and distinct article that a manufacture can be said to
Manufacture thus involves series of processes. Process in manufacture or in
relation to manufacture implies not only the production but the various stages
through which the raw material is subjected to change by different operations.
It is the cumulative effect of the various processes to which the raw material
is subjected (sic that the) manufactured product emerges. Therefore, each steps
towards such production would be a process in relation to the manufacture.
Where any particular process is so integrally connected with the ultimate
production of goods that but for that process manufacture of processing of
goods would be impossible or commercially inexpedient, that process is one in relation
to the manufacture.
That natural meaning of the word 'process' is a mode of treatment of certain
materials in order to produce a good result, a species of activity performed on
the subject matter in order to transform or reduce it to a certain stage.
According to Oxford Dictionary one of the meanings of the word 'process' is a
"continuous and regular action or succession of actions taking place or
carried on in a definite manner and leading to the accomplishment of some
result". The activity contemplated by the definition is perfectly general
requiring only the continuous or quick succession. It is not one of the
requisites that the activity should involve some operation on some material in
order to (sic effect) its conversion to some particular stage. There is nothing
in the natural meaning of the word 'process' to exclude its application to
handling. There may be a process which consists only in handling and there may
be a process which consists only in handling and there may be a process which involves
no handling or not merely handling but use or also use.
be a process involving the handling of the material and it need not be a
process involving the use of material. The activity may be subordinate but one
in relation to the further process of manufacture." Deputy Commissioner of
Sales Tax (Law), Board of Revenue (Taxes), Ernakulam vs. M/s. Thomas Stephen
& Co.Ltd., Quilon [(1988) 2 SCC 264] is a case under the Kerala General
Sales Tax Act, 1963. The assessee used to purchase cashew shells for use as
fuel in the kiln in the factory. Under the Act levy of tax was on consumption
of goods in the manufacture of other goods for sale or otherwise. The
difference between use of goods in manufacture as raw material and use for
other ancillary purposes was brought out. Goods used for ancillary purposes
like fuel in the process of manufacture were held not to be exigible to tax.
Since cashew shells were used only as fuel and they did not get transformed
into the end product they were held to be not exigible to tax. Cashew shells
were used in aid of manufacture of goods and as such they did not attract levy
case in hand also coal which leads to production of cinder is not used as a raw
material for the end product. It is being used only for ancillary purpose that
is as a fuel. Therefore, irrespective of the fact whether any manufacture is
involved in production of cinder it should be held to be out of the tax net for
the reason that it is not a raw material for the end product.
producing 'cinder', there is no manufacturing process involved. Coal is simply
burnt as fuel to produce steam. Coal is not tampered with, manipulated or
transformed into the end product. For purposes of manufacture the raw material
should ultimately get a new identity by virtue of the manufacturing process
either on its own or in conjunction or combination with other raw materials.
Since coal is not a raw material for the end product in all the cases before
us, the question of getting a new identity as an end product due to
manufacturing process does not arise.
Collector of Central Excise, New Delhi vs.
M/s. Ballarpur Industries Ltd. [(1989) 4 SCC 566], the raw material in the
course of chemical reactions got burnt up and lost its apparent identity. To be
more precise, the input of sodium sulphate in the manufacture of paper would
not cease to be of raw material by reason alone of the fact that in the course
of the chemical reactions, this ingredient is consumed and burnt up. All the
same it remained a raw material. It was held that the relevant test is not the
absence of the raw material in the end product, but the dependence of the end
product for its essential presence at the delivery end of process. What follows
from this is that the raw material which we are concerned about is the raw
material which is linked with emergence of the end product. It has to be
present in the end product whether visibly or invisibly. Use of an item as fuel
cannot be called part of the manufacturing activity in relation to production of
the end product. Therefore, cinder cannot be said to be a by-product of the
final product. At best it is a by- product of coal which is used as fuel.
burning of coal be called manufacturing? The locomotive steam engines used to
run on coal. Coal was being constantly burnt in the boiler of the engine. The
constant burning of coal produced cinder. Could it be said that the engine
driver was manufacturing cinder ? Is any manufacturing activity involved ?
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.
remains coal. In fact, the Department has itself described it as unburnt part
of coal in the grounds of appeal in C.A.No.2168-2169 of 2001 in the Ahmedabad
Electricity Supply Company Case.
is not a new product. After correctly describing cinder as unburnt part of
coal, the Revenue cannot equate it to ash simply to somehow bring it within
Entry 26.21 of the Tariff Act.
First Schedule to the tariff, cinder does not find any place anywhere. It
appears that it is because of this that the Revenue had to fall back upon entry
26.21 in the First Schedule in order to cover cinder within the excise net. The
new tariff that is Tariff Act, 1985 does not have a residuary entry like entry
68 in the old tariff. Instead the new tariff has interpretative notes. Whenever
some by-product of a product is sought to be included for taxability it has
been so said in the interpretative notes. However, regarding coal there is no
interpretative note nor there is anything about cinder. When cinder is derived
from coal it could have at best been treated as coal for purposes of entries in
the First Schedule to the Tariff Act. But that would not suit the department
because coal is exempt from excise duty. The department now describes cinder as
"coal ash". But coal ash also fails the test of being manufactured in
India. It cannot be subjected to levy of excise duty.
learned counsel appearing for the assessee brought to our notice several
judgments of the CEGAT holding that cinder was not exigible to payment of
excise duty. Against some of the judgments statutory appeals filed before this
Court were dismissed.
ELT 97] it was held by CEGAT that cinder obtained by burning coal in boiler
does not constitute manufacture of excisable commodity even if sold for a
price. In Collector of Central Excise burning coal in the boiler as a fuel is
not exigible to excise duty. Civil appeal filed by the Collector of Central
Excise, Calcutta against the Collector of Central
Excise [(1989) Vol.40 ELT 422] is another judgment of the CEGAT holding cinder
to be coal waste. Merely because it could fetch some price on sale it is not exigible
to excise duty. Appeal against this judgment was also dismissed by this Court.
Mills [82 ELT A-160]. Both these cases are regarding cinder being held to be
not exigible to excise duty and appeals against orders of the CEGAT in these
cases were dismissed by this Court.
Bombay High Court noting this consistent view of the CEGAT Union of India
[2002(142) ELT 319] that cinder produced from use of coal as fuel could not be
treated as excisable commodity. Against this decision of the High Court,
Special Leave Petition was dismissed by this Court.
this Court had occasion to deal with a case of excise duty sought to be levied
on 'spent earth'. This was in Vanaspati and Allied Industries [2003 (153) ELT
491]. Excise duty was being paid on "earth". 'Spent earth' is a
residue resulting from treatment of fatty substances. The 'spent earth'
remained 'earth' even after processing though its capacity to absorb was reduced.
It was held that no excise duty was leviable 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 reasonably be said
that 'cinder' i.e. coal of reduced quality still was coal and not exigible to
India and others [ (1987) 29 ELT 502 Delhi ] 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. 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
held that this was not exigible to tax even though the waste may have some
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
skillful manipulation of the inputs or the raw materials. This was not so in
case of scrap.
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 assessees
manufactured aluminium products out of the 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.
dross contain an amount of metal from which they come but they lack not only
metal body but also 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 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 (Supra) wherein brass scrap produced during manufacturing of brass
goods were considered to be 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 turn lead to loss pf precious 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
authorities concerned and therefore it is too late for us to go into all this.
the tests laid down in these judgments, it is not possible to say that cinder
satisfies the requirement of being manufactured in India.
the above 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 said to have gone through any process of
manufacture, therefore, it cannot be subjected to levy of excise duty.
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. They
have done nothing to discharge this onus. For this reason alone they must fail.
Department has been consistently taking a stand that cinder is not excisable as
it does not involve any manufacturing activity. The Department issued a
clarification vide Circular No.B.352/75-TRU(pt) dated 6th June, 1975. According to it coal ash left out
in burning of coal would not attract duty under item 68 for the reason that in
the burning of coal as fuel, resulting in coal ash as a waste product no
manufacturing process is involved. With the introduction of the new tariff in
1986 and specific entry for ash being included in the Tariff Chapter 26, the
issue again revived.
No.76/86 dated 10th February, 1986 exempted cinder from levy of excise duty.
The whole thing was sought to be overturned after the annual budget for the
year 1996-97. The Tariff Act, 1975 was amended by virtue of the Tariff Act,
1985. The exemption was withdrawn by virtue of notification No. 11/96 dated
23rd July, 1996 in view of the annual budget for the year 1996-97.
Commissioner of Central Excise vide Trade Notice No. 35 of 1998 dated 21st
August, 1998 clarified that coal ash (cinder) is specified in the Schedule to
the Tariff Act and read with Section 2(d) of the Central Excise Act was subject
to levy of excise duty. This sudden turn is not only unjustified but also is
contrary to law.
say it is contrary to law is because the department clarified in June, 1975
that cinder is not exigible to excise duty as in its emergence no manufacturing
process is involved. How can suddenly cinder become exigible to excise duty ?
The procedures which lead to emergence of cinder have remained the same as they
were in 1975. If it was not the result of manufacturing process in 1975, it is
not so even now. This aspect was not taken into consideration at all.
Interestingly in the Circular No.386/19/98-CX dated 7th April, 1998 the Central
Board of Excise and Customs while declaring coal ash (cinder) as subject to
levy of excise duty, states that "the commodity also satisfied the tests
of marketability and has a distinct commercial identity known to trade."
There is no reference to the essential test of being manufactured in India. It
is for failing this test that the item was excluded from levy of excise duty
earlier in 1975 How can you ignore it now ? 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 another
test of marketability i.e., to be exigible to excise duty goods must be
marketable. It is not disputed that cinder is being sold by the assessees. But
can it be said to be marketable goods in the sense word marketable is used ? We
doubt it. However, this need not detain us since cinder does not satisfy the
test of being manufactured in India. Even if it is saleable, it does not make
any difference. The result is that the contention of the Revenue that cinder is
liable to payment of excise duty is hereby rejected.
3 The objection is that the High Court should not have entertained a petition under
Article 226 of the Constitution of India in the facts and circumstances of the
case. At the outset we may note that we have only one Civil Appeal in the case
of Ahmedabad Electricity Company (C.A.No. 2168-69/2001) which is arising from
proceedings before the High Court under Article 226. The remaining matters in
the bunch are statutory appeals under Section 35L of Central Excise Act.
Therefore, this court has to go into the matter on merits. Moreover, in the Ahmedabad
Electricity Company's case challenge by way of Writ Petition under Article 226
was to a Circular dated 7th April, 1998 issued by the Central Board of Excise
and Customs and the consequential Trade Notice No.36/98 dated 22nd May, 1998
issued by the office of the Commissioner of Central Excise and Customs, Ahmedabad
by which it was clarified that "coal- ash (cinder)" is an excisable
commodity classifiable under sub- heading No. 26.21 of the Central Excise
Tariff Act, 1985. In the first place no objection regarding maintainability of
the Writ Petition seems to have been taken before the High Court. Even if such
an objection was raised, the same would have been a futile attempt. In the
facts of the case the High Court would have been justified in rejecting such an
objection. The impugned circular could not have been challenged before the
departmental authorities as they would have felt bound by it. We find no merit
in the objection. The same is rejected.
the appeals filed by the Revenue stand dismissed with no order as to costs.