2014 (12) TMI 657 - HC - Central Excise

Manufactured goods - Marketability - Aluminium Dross and Skimmings or similar Non-ferrous Metal Dross and Skimmings - Explanation added to Section 2(d) of the Central Excise Act, 1944 - whether the definition having been either amended or an Explanation inserted thereto would result in any change in the legal position - Held 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 a new and different article with a distinctive name, character or use or that they ordinarily come to the market to be bought and sold and are known to the market. The article or goods manufactured from the aluminium ingots was not dross and skimmings but the aluminium sheets. It was the aluminium sheets therefore that were the endproduct or the finished product and not the dross and skimmings which were merely the refuse or scum or rubbish thrown out in the course of the manufacture of the finished product, namely, the aluminium sheets. As stated earlier, in the affidavitinreply, there has throughout been a repeated emphasis that the dross and skimmings are a byproduct and that the aluminium ingots were used by the company in the manufacture of dross and skimmings. 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. - Merely because the goods satisfying the test of being marketed and saleable, it does not mean that the test of being manufactured in India has been satisfied. Merely selling does not mean dross and skimming are marketable commodity as even rubbish can be sold. Everything which is sold is not necessarily a marketable commodity as known to commerce and which it may be worthwhile to trade in. - When the Hon ble Supreme Court holds and as in Grasim Industries Ltd. (2011 (10) TMI 2 - SUPREME COURT OF INDIA) 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. - Decided in favour of assessee.

Issues Involved:
1. Whether aluminium dross and skimmings are "manufactured goods" and hence, excisable under the Central Excise Act, 1944.
2. Validity of the two Circulars dated 28th October 2009 and 14th February 2011 issued by the Central Board of Excise and Customs.
3. Interpretation and applicability of the Explanation added to Section 2(d) of the Central Excise Act, 1944 by the Finance Act, 2008.

Detailed Analysis:

1. Whether Aluminium Dross and Skimmings are "Manufactured Goods" and Hence, Excisable:

The Petitioner, engaged in the activity of melting aluminium ingots to obtain rolled products like sheets and foils, argued that aluminium dross and skimmings, emerging as byproducts during the melting process, are not "manufactured goods" and thus not excisable. The Department contended that these byproducts are chargeable to Central Excise duties under subheading 26204010 of the Central Excise Tariff Act, 1985, relying on Section 3 of the Central Excise Act, 1944, which levies duty on all excisable goods produced or manufactured in India.

The Tribunal had conflicting decisions on whether aluminium dross and skimmings can be considered "manufactured goods" post the insertion of the Explanation to Section 2(d) of the Central Excise Act, 1944, by Finance Act, 2008. The Petitioner cited several Supreme Court judgments, including Indian Aluminium Co. Ltd. vs. A. K. Bandyopadhyay (1980), Union of India vs. Indian Aluminium Co. Ltd. (1995), and Commissioner of Central Excise vs. Tata Iron and Steel Co. Ltd. (2004), which consistently held that dross and skimmings are not "goods" as they are merely refuse or scum thrown off during the manufacturing process and not new and different articles with a distinctive name, character, or use.

The Court reiterated that the definition of "excisable goods" under Section 2(d) and the definition of "manufacture" under Section 2(f) must be satisfied conjunctively. It held that dross and skimmings are not manufactured goods and thus not excisable, aligning with the Supreme Court's authoritative pronouncements.

2. Validity of the Circulars Dated 28th October 2009 and 14th February 2011:

The Petitioner challenged the two Circulars issued by the Central Board of Excise and Customs, arguing that they cannot override the legal position established by the Supreme Court. The Circulars relied on the Explanation added to Section 2(d) to assert that aluminium dross and skimmings are excisable.

The Court held that the Circulars cannot override the judicial discipline and settled legal position established by the Supreme Court. The Tribunal's decision, which supported the Circulars, was found to be contrary to the Supreme Court judgments and thus perverse and vitiated by an error of law.

3. Interpretation and Applicability of the Explanation Added to Section 2(d) of the Central Excise Act, 1944:

The Explanation added to Section 2(d) states that "goods" includes any article, material, or substance capable of being bought and sold for consideration and deemed to be marketable. The Department argued that this Explanation changed the legal position, making aluminium dross and skimmings excisable.

However, the Court held that the Explanation does not overcome the test of manufacture. The Supreme Court, in Grasim Industries Ltd. vs. Union of India (2011), held that the conditions under Section 2(d) and Section 2(f) must be satisfied conjunctively. The Court concluded that merely being marketable does not make dross and skimmings excisable if they are not manufactured goods.

Conclusion:

The Court quashed and set aside the Tribunal's order dated 19th August 2014, holding that aluminium dross and skimmings are not manufactured goods and thus not excisable. The two Circulars issued by the Central Board of Excise and Customs were also invalidated as they contradicted the established legal position. The Rule was made absolute in terms of prayer clause (a), with no order as to costs.

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