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.

Issues Involved:
1. Whether 'fly ash' and 'fly ash bricks' are exigible to excise duty.
2. Whether the show cause notice issued for the imposition of excise duty on 'fly ash' and 'fly ash bricks' is valid.
3. Applicability of exemption Notification No.89/95-CE dated 18.05.1995 to 'fly ash'.

Detailed Analysis:

1. Exigibility of 'Fly Ash' and 'Fly Ash Bricks' to Excise Duty:

Fly Ash:
The court examined whether 'fly ash' involves any manufacturing activity and falls under the purview of excisable goods. It referred to the definition of "excisable goods" and "manufacture" under Sections 2(d) and 2(f) of the Central Excise Act. The court concluded that to be subjected to excise duty, goods must be produced or manufactured in India, involving a process of transformation into a new product. The court cited the Supreme Court's decision in "Union of India vs. Ahmedabad Electricity Company Limited," which held that 'cinder' (unburnt part of coal) is not exigible to excise duty as it does not involve any manufacturing process. The court applied this reasoning to 'fly ash,' concluding that it also does not undergo any manufacturing process and thus cannot be subjected to excise duty.

Fly Ash Bricks:
The court distinguished 'fly ash bricks' from 'fly ash,' noting that the former involves a manufacturing process where 'fly ash' is transformed into bricks. Since 'fly ash bricks' undergo a change and are recognized as a new and distinct article, they satisfy the test of being manufactured in India and are marketable. Therefore, 'fly ash bricks' are leviable to excise duty.

2. Validity of the Show Cause Notice:
The petitioner challenged the show cause notice dated 21.03.2014, which demanded CENVAT duty, interest, and penalty for the clearance of 'fly ash' and 'fly ash bricks' without payment of appropriate excise duty. The court noted that the notice was issued based on the introduction of the levy of duty on 'fly ash' from 01.03.2011. However, since the court concluded that 'fly ash' does not involve any manufacturing activity and thus is not exigible to excise duty, the imposition of excise duty, interest, and penalty on 'fly ash' was deemed invalid.

3. Applicability of Exemption Notification No.89/95-CE:
The petitioner argued that 'fly ash' is a waste product arising during the manufacture of 'electricity,' which is exempted from excise duty under Notification No.89/95-CE. The court examined this notification and concluded that it exempts waste, parings, and scrap arising during the manufacture of exempted goods from excise duty. The court noted that 'electricity' is specified in the First Schedule of the Central Excise Tariff under heading 27160000, with a nil rate of duty, making it an excisable good chargeable to nil rate of duty. Thus, the exemption notification applies to 'fly ash,' which is a waste product arising during the manufacture of 'electricity.'

Conclusion:
The court set aside the impugned show cause notice dated 21.03.2014 concerning the imposition of excise duty, interest, and penalty on 'fly ash.' However, the court upheld the imposition of excise duty on 'fly ash bricks,' concluding that they involve a manufacturing process and are marketable. The writ petition was partly allowed, with no costs, and connected miscellaneous petitions were closed.

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