2017 (1) TMI 222 - HC - Central Excise

Manufacture - Fly Ash - Whether fly ash as formed during the production of electricity is a product, which falls within the meaning of manufacture as defined under Sections 2 (f) of the Central Excise Act? - Held that - The twin tests have to be satisfied in order to bring a product within the ambit of excise duty and satisfaction of solitary test alone would not be sufficient to levy excise duty on the commodity. Therefore, mere marketability of the product alone would not be suffice to levy duty on the fly ash , there being no manufacturing process involved. There is no quarrel that the product fly ash is a marketable product - it is clear from the averments of either party and is also not in dispute that fly ash is a by-product during the production of electricity and is not the main manufactured item. Further, the fly ash is not a commodity which can be used as such in the market, but it is usable only as one of the materials in the production of other products. Therefore, there being no manufacture of fly ash , but fly ash gets formed as a by-product during the production of electricity, merely because the goods fly ash finds a place in the specific or residuary entry in the schedule it cannot be termed as an excisable commodity, since it satisfies the test of marketability. - mere marketability of the product alone would not be suffice to levy duty on the fly ash , there being no manufacturing process involved. Whether the product fly ash , which is a by-product during the production/manufacture of electricity could be termed as a waste in order to attract Notification No. 89/95-CE dated 18.5.95? - Held that - The product is capable of being bought and sold, whereby marketability of the product is such that it has a value in the market. Once a product is said to have a value in the market to enable it to be sold for the purpose of manufacture of various commodities, it cannot be termed as waste or scrap. - Such being the case, learned single Judge has misled himself into giving a finding that the by-product fly ash , which is generated during the production of electricity is a waste or scrap and, thereby, Notification No.89/95-CE dated 18.5.95 would stand attracted. The said finding of the learned single Judge is per se erroneous and is liable to be interfered with. The primary issue is answered in favor of the respondent and against the appellants, the incidental issue is answered in favor of the appellants and against the respondent - appeal dismissed - decided partly in favor of appellant.

Summary

Issues Involved:
1. Whether 'fly ash' formed during the production of electricity falls within the meaning of manufacture under Section 2(f) of the Central Excise Act.
2. Whether 'fly ash', a by-product during the production of electricity, could be termed as waste to attract Notification No. 89/95-CE dated 18.5.95.

Detailed Analysis:

Issue 1: Whether 'fly ash' formed during the production of electricity falls within the meaning of manufacture under Section 2(f) of the Central Excise Act.

The court examined Sections 2(d) and 2(f) of the Central Excise Act to determine if 'fly ash' qualifies as a manufactured product. Section 2(d) defines excisable goods as those specified in the First Schedule and capable of being bought and sold. Section 2(f) includes any process incidental or ancillary to the completion of a manufactured product. The court noted that for a commodity to be levied with duty, it must be produced or manufactured in India and undergo a transformation into a new product. The court found that 'fly ash' is a by-product of electricity production and not a manufactured product. The court emphasized that 'fly ash' merely forms during the production of electricity and does not involve a manufacturing process. Therefore, 'fly ash' does not fall within the ambit of manufacture under Section 2(f) of the Act, even though it is marketable.

Issue 2: Whether 'fly ash', a by-product during the production of electricity, could be termed as waste to attract Notification No. 89/95-CE dated 18.5.95.

The court considered the applicability of Notification No. 89/95-CE, which exempts waste or scrap arising during the manufacture of an exempted product. The court noted that 'fly ash' is marketable and used in the production of asbestos, cement, and fly ash bricks. The court held that 'fly ash' cannot be termed as waste or scrap since it has market value and is capable of being bought and sold. Consequently, the court found that Notification No. 89/95-CE does not apply to 'fly ash'.

Conclusion:

The court upheld the learned single judge's finding that 'fly ash' is not a product manufactured under Section 2(f) of the Central Excise Act. However, it overturned the finding that 'fly ash' qualifies as waste under Notification No. 89/95-CE. The writ appeal was dismissed, with no order as to costs.