2017 (12) TMI 1023 - AT - Central Excise

Waste - Liability of duty - fly ash emerging during the process of burning in the furnace - Held that - this Tribunal in several cases has consistently held that fly ash is in the nature of process waste and no duty will be payable on such goods - identical issue decided in the case of M/s Jai Balaji Industries Ltd. Versus CCE & ST, Raipur 2017 (6) TMI 898 - CESTAT NEW DELHI , where it was held that the fly ash emerging during the course of generation of electricity cannot be considered as a manufactured product liable to Central Excise Duty - demand on fly ash set aside. Liability of duty - mill scale - Held that - similar issue has come up before the Hon ble Bombay High Court in the case of Hindalco Industries Limited vs. Union of India 2014 (12) TMI 657 - BOMBAY HIGH COURT in which the Hon ble High Court considered the dutiability of dross, skimming of various non-ferrous metal arising as process waste during the course of manufacture. The Hon ble High Court has held that dross, skimming etc. are merely the refuse, scum or rubbish arising in the process of manufacture of aluminium sheets and, therefore, cannot be said the result of treatment, labour or manipulation whereby a new and different article emerges with a distinctive name, character or use - mill scale is not liable for levy of excise duty. Clandestine removal - shortages of finished products - Held that - Once the appellant has accounted the finished products manufactured in its record, it is incumbent upon him to clear the same after payment of proper Central Excise duty. Having failed to do so, the appellant will be liable to pay such duty alongwith interest as has been done in the impugned order. This portion of the demand merits no interference and is sustained - demand on shortages are upheld. The matter is remanded to the adjudicating authority for the limited purpose of requantification of demand as well as the associated penalties. Appeal partly allowed by way of remand for purpose of quantification.

Summary

Issues:
1. Duty payable on fly ash
2. Duty demand on mill scale
3. Duty demand on shortages of finished products

Analysis:

Issue 1: Duty payable on fly ash
The appellant was engaged in manufacturing various products under Chapter 72 of the Central Excise Tariff Act, 1985. The Central Excise Officers found shortages in finished products during a verification visit and noted the clearance of fly ash and mill scale without duty payment. The appellant challenged the duty demand on fly ash, claiming it was process waste. The Tribunal referred to a previous case and cited the Hon'ble Madras High Court's judgment to establish that fly ash, being a by-product during electricity generation, does not qualify as a manufactured product liable for excise duty. Consequently, the Tribunal set aside the duty demand on fly ash.

Issue 2: Duty demand on mill scale
Regarding the duty demand on mill scale, claimed to be process waste during the manufacture of certain products, the Tribunal relied on a decision of the Hon'ble Bombay High Court. The High Court had held that certain process waste like dross and skimming were not dutiable as they did not result in a new article. Following this precedent, the Tribunal concluded that mill scale was not subject to excise duty and therefore set aside the duty demand on mill scale.

Issue 3: Duty demand on shortages of finished products
The officers noticed shortages of finished products during the verification, and the appellant's Senior Officer admitted to the shortages and agreed to pay the duty. However, in the appeal, the appellant claimed the shortages were estimated visually, not by actual weighment. The Tribunal held that once the stock verification was accepted by the appellant during the process, they could not challenge it later. As the appellant failed to clear the finished products after accounting for them, the duty demand on shortages was upheld. The matter was remanded for requantification of the demand and associated penalties.

In conclusion, the Tribunal set aside the duty demands on fly ash and mill scale but upheld the duty demand on shortages of finished products. The impugned order was remanded for further proceedings in light of the Tribunal's observations.